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Statement on Prudent Risk Management for CRE Lending

December 18, 2015

Summary:

The Federal banking agencies 1are 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.

Highlights:

  • 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.

Distribution:

  • FDIC-Supervised Institutions

Suggested Routing:

  • Chief Executive Officer
  • Chief Lending Officer

Paper copies 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).

  • 1

    The Federal banking agencies include the Federal Deposit Insurance Corporation, the Board of the Federal Reserve System, and the Office of the Comptroller of the Currency.

Attachment(s)
FIL-104-2006, Interagency Guidance on Concentrations in Commercial Real Estate
Statement on Prudent Risk Management for Commercial Real Estate Lending

Last Updated: December 18, 2015