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Advisory capital, inc. |
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Revolutionizing the world of commercial lending |
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Commercial real estate news |
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On December 6, 2006, the three major banking regulatory agencies, including the Office of the Comptroller of the Currency, the Federal Reserve Board of Governors, and the Federal Deposit Insurance Corporation issued final guidance on the amount of commercial real estate loans that banks can hold.
The guidance sets thresholds at 100% or more of capital for construction and land development loans and 300% of capital for commercial real estate loans. Beyond those thresholds, banks would be targeted for additional regulatory oversight. Banks whose commercial real estate loan portfolio increased 50 percent or more in the preceding three years would also be subject to additional scrutiny.
The regulatory agencies were careful to point out that the thresholds are not limits. The guidance, the agencies said, “reminds institutions that strong risk management practices and appropriate levels of capital are important elements of a sound lending program, particularly when an institution has a concentration in commercial real estate loans.”
Rationale behind feds’ action
The regulatory agencies have expressed concern about banks’ high concentrations of commercial real estate loans since early 2006. They see the trend particularly among small and mid-sized banks. According to their press release, the agencies said that they “are concerned that rising commercial real estate loan concentrations may expose institutions to unanticipated earnings and capital volatility in the even of adverse changes in commercial real estate markets.”
If history sets a precedent for the future, then the regulatory agencies may be right on. In the 1980s the real estate market plummeted and took many banks down with it. Yet many small and mid-sized banks have higher concentrations of real estate loans than they did before the 1980s crash.
The regulators acknowledge that it’s a balancing act. “The guidance is intended to help ensure that institutions pursuing a significant commercial real estate lending strategy remain healthy and profitable while continuing to serve the credit needs of their communities.”
Why banks worry
Opponents of the guidance say that banks’ ability to serve the credit needs of their communities will be adversely affected by the thresholds. And if banks cut down on commercial lending activity, they say, it would be detrimental to the economy.
Many banks also worry that the “guidelines” will be treated by regulators as hard-and-fast rules. In response to that concern, the regulatory agencies have promised to train bank examiners emphasizing “that the numerical screening criteria are not to be viewed as limits on an institution’s commercial real estate lending activity.”
Clarifications designed to relieve banks’ concerns
Based on concerns that banks voiced after the regulators issued their initial guidance, the final guidance includes the following provisions designed to assuage banks’ concerns:
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Feds propose guidelines on the amount of commercial real estate loans that banks can hold |
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Volume 1, Issue 3 |
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10 Signs You Picked the Wrong ISP 1. Their company logo: two tin cans and a length of string. 2. You check out their address, and it's a phone booth containing a Compaq portable and an acoustic coupler. 3. Their chief technical officer lives in a 10-foot-by-7-foot shack in the woods. 4. Their proud boast: "We've been on the Internet since it was CB radio." 5. Their promo materials use the words "information" and "superhighway" in the same sentence. 6. You order an SLIP/PPP connection, e-mail, and 2MB of server space for your personal Web site, and the voice on the other end of the phone asks, "Would you like fries with that?" 7. "As seen in Better Business Bureau special reports." 8. "Access speeds up to 9,600 bps in most areas." 9. They hawk both domain names and Rolexes on street corners. 10. They charge by the word.
Thanks to Comedy Central for this issue’s Funnies! |
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The Funnies |
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About Advisory Capital, Inc. |
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Advisory Capital, Inc. is dedicated to helping small and medium-sized businesses find commercial real estate financing that is right for them. We offer loans with industry-competitive rates and terms.
We specialize in underwriting commercial real estate loans ranging from $100,000 to $10,000,000 – including income-producing properties (apartment complexes, office buildings, shopping centers, industrial centers, and parking lots) and investment properties, including raw land. We underwrite SBA loans as well as church loans.
Contact us today to see what we can do for you!
John Smith, President Advisory Capital Inc. 123 Main St. Sample, US 12345
555-555-5555 |
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