December 18, 2015
Statement on Prudent Risk Management for CRE Lending
The Federal banking agencies1 are issuing an interagency statement to highlight prudent risk-management practices from existing guidance that regulated financial institutions should apply in the management of their commercial real estate (CRE) lending activity. Financial institutions should implement risk-management practices and maintain capital levels commensurate with the level and nature of their CRE concentration risk.
Statement of Applicability to Institutions With Total Assets Under $1 Billion: This Financial Institution Letter applies to all FDIC-supervised institutions.
- Financial institutions with weak risk-management practices and high CRE credit concentrations are exposed to a greater risk of loss and failure.
- The agencies’ examination and industry outreach activities have revealed an easing of CRE underwriting standards.
- Financial institutions should maintain underwriting discipline and exercise prudent risk-management practices that identify, measure, monitor, and manage the risks arising from their CRE lending activity.
- The agencies’ review of CRE lending activities will focus on financial institutions’ implementation of the prudent principles in applicable guidance relative to identifying, measuring, monitoring, and managing concentration risk in CRE lending activities.