WASHINGTON, Dec 18 (Reuters) - The top U.S. banking
regulators issued a forceful warning about commercial real estate lending on
Friday, saying they will keep close watch on the segment next year as a recent
swell in looser loan standards threatens banks' financial health.
The statement from the Federal Reserve's Board of Governors,
Federal Deposit Insurance Corporation and the Office of the Comptroller of the
Currency said banks have been easing underwriting on loans for commercial real
The agencies "also have observed certain risk
management practices at some institutions that cause concern, including a
greater number of underwriting policy exceptions and insufficient monitoring of
The warning comes after a series of federal analyzes found
that looser underwriting standards, especially prevalent in commercial real
estate (CRE) loans, posed threats to the financial stability of both banks and
the United States.
In Friday's statement, the regulators said that next year
they will "continue to pay special attention to potential risks associated
with CRE lending." They will focus on banks that have recently experienced
substantial growth in commercial real estate lending, that plan to increase the
lending, or operate in growing or risky markets.
The agencies could ask lenders to strengthen underwriting
standards or raise additional capital, according to the statement. They could
also ask for plans to better monitor the loans, which can be made for shopping
centers, office spaces, apartment buildings or condominium projects.
The statement outlined a series of steps that the banks
could take to lower their risks, such as analyzing a borrower's ability to
service all of its debts during periods of rising interest rates.
(Reporting by Lisa Lambert; Editing by Matthew Lewis)