Economy Watch: U.S. Official Talks of CRE Froth

U.S. Comptroller of the Currency Thomas Curry warned that credit risk is growing for certain banks with CRE loans in several major markets.
Thomas Curry, U.S. Comptroller of the Currency

Thomas Curry, U.S. Comptroller of the Currency

U.S. Comptroller of the Currency Thomas Curry, part of whose job is to oversee banking regulations, recently told the Reuters Financial Regulation Summit in Washington, D.C., that credit risk is growing for certain banks with CRE loans in certain markets. In particular, lenders are exposed to “froth” in apartment markets in New York, Boston, Washington D.C., and San Francisco, he asserted.

The Office of the Comptroller is pressing banks to tighten up loan terms to property developers, and toward that end, recently reissued its guidance on how banks should approach CRE lending. The guidance, issued along with the FDIC and the Fed, warned financial institutions that there will be a renewed focus by regulators in 2016 on the concentration risk in commercial real estate lending.

“That was meant to flag the issue for the banks so they can take corrective action now on their own before going through any type of examination cycle,” Curry said at the summit. “The actual loan terms and covenants are weakening.” Even so, he added that he doesn’t necessarily expect the “bottom [to] fall out as it did in other areas during the recession.”

The OCC can have an impact on lending; Another industry that the OCC concerned itself with in recent years is energy, pressing lenders to tighten their terms beginning about two years ago. Since then, due to regulatory tightening and falling prices, lending to energy companies has dropped.