Fresh Evidence on Bank Failures and Commercial Real Estate
By Sam Chandan
Executive Summary
➤ The F.D.I.C.’s list of problem banks reaches 775, almost one in 10 banks nationally.
➤ In a new study, the Office of the Inspector General determines that commercial real estate is a contributing factor in bank failure in 36 of the 56 cases analyzed; construction loans, in 49 of the 56 cases.
➤ For failed banks where commercial real estate was cited, the average CRE default rate was 11.4 percent, three times that for all active banks as of December 2009.
➤ Of the 7,721 active banks with exposure to CRE in the first quarter, 565 reported CRE default rates of 10 percent or higher; 440 reported default rates in excess of 11.4 percent for cited bank failures.
List of Problem
Banks Grows
The Federal Deposit Insurance Corporation (F.D.I.C.) raised its estimate of the nation’s troubled banks to 775 last week, up from 702 last quarter. With the number of active banks slipping—on account of failures and mergers offset by three new charters—from 8,012 at year-end 2009 to 7,932 following the first quarter, almost one in 10 F.D.I.C.-insured institutions are now included on the regulator’s confidential “problem” list.
