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Financial Institution Letters

Policy Statement on Prudent Commercial Real Estate Loan Workouts FIL-61-2009
October 30, 2009

Summary: The financial regulators recognize that prudent commercial real estate (CRE) loan workouts are often in the best interest of financial institutions and creditworthy CRE borrowers. The attached guidance focuses on the elements of prudent workout programs. It also provides illustrations of the analytical review process to ensure the credit risk in a loan workout is accurately identified and the arrangements receive appropriate regulatory reporting and accounting treatment.

  • Institutions and borrowers face significant challenges when dealing with diminished operating cash flows, depreciated collateral values, or prolonged sale and rental absorption periods.
  • The financial regulators recognize that prudent CRE loan workouts are often in the best interest of the financial institution and CRE borrowers.
  • Performing loans, including those renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral has declined to an amount that is less than the loan balance.
  • Institutions that implement prudent CRE loan workouts after performing a comprehensive review of a borrower's financial condition will not be subject to criticism for engaging in these efforts, even if the restructured loans have weaknesses that result in adverse classification.
  • Examiners will take a balanced approach in assessing the adequacy of an institution's risk management practices for loan workout activity.
  • The guidance includes a series of examples of CRE loan workouts, which are provided for illustrative purposes only.
  • This guidance replaces the Interagency Policy Statement on the Review and Classification of Commercial Real Estate Loans (November 1991).

FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing:
Chief Executive Officer
Chief Lending Officer

Related Topics:
Managing CRE Concentrations in a Challenging Environment (FIL-22-2008)
Interagency Statement on Meeting the Needs of Creditworthy Borrowers (FIL-128-2008)
Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (FIL-104-2006)

Policy Statement on Prudent Commercial Real Estate Loan Workouts (PDF Help)

For supervisory issues:
Beverlea S. Gardner, Senior Examination Specialist, at or (202) 898 3640
For regulatory reporting and accounting issues:
FDIC Regional Accountant or Robert F. Storch, Chief Accountant, at or (202) 898 8906

Printable Format:
FIL-61-2009 - PDF (PDF Help)

FDIC financial institution letters (FILs) may be accessed from the FDIC's Web site at

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Paper copies of FDIC financial institution letters may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).

Last Updated 10/30/2009

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