How the New CRE Focus Emerged

By Adam Mustafa, Invictus Group President and CEO

The Federal Reserve was the first to sound the alarm about a new potential issue with commercial real estate concentrations, according to the Government Accountability Office. The Fed told the GAO it began monitoring CRE concentrations in mid-2013 after it noticed they were increasing. The OCC began actively monitoring CRE loan growth in the middle of 2014, with a mandate to examiners to focus on CRE risk management in 2015 exams. The FDIC’s Regional Risk Committees identified the issue as a concern in 2015 and notified the National Risk Committee. The regulators then began meeting in 2015 to discuss what they could do to help banks manage the mounting CRE concentration risks. Those meetings led to a strong December 2015 joint statement on CRE concentration risk management that told banks they might have to raise additional capital to mitigate the risk associated with CRE exposures. The statement noted that examiners would focus on banks that “recently experienced, or whose lending strategy plans for, substantial growth in CRE lending activity” or those that operate in markets with increasing growth or risk.