Head of Federal Reserve Comments on Banking Regulations for Commercial Loans

Ben Bernanke must be reading our website. Following our discussion on the commerical loan industry, Bernanke warned banks about regulating the approval process on these real estate loans today.

The Chairman of The Federal Reserve that said that rapid growth in this field makes it important to keep an eye on. Community banks must be stringent with their policies.

“In most local markets, commercial real estate loans have performed well,” Bernanke said. “Our examiners tell us that lending standards are generally sound” and are not comparable to the lax standards that contributed to the savings and loan crisis two decades ago, he said.

“However, more recently, there have been signs of some easing of underwriting standards,” Bernanke said in a speech to the Independent Community Bankers of America meeting in Las Vegas.

The growth of commercial real estate loans “raises the possibility that risk-management practices in community banks may not have kept pace with growing concentrations and may be due for upgrades in oversight,” he said.

Bernanke said that in recent years community banks have become more focused on commercial real estate lending, “leading to a significant shift in the balance sheet and risk profiles of growing numbers of banks.”

Federal banking agencies have recently proposed guidance to help focus bank examiners’ attention on commercial real estate loans that could be particularly vulnerable if market conditions change, Bernanke said.

Those potentially vulnerable loans are dependent primarily on the sale, lease or refinancing of commercial property as the source of loan repayment, he said.