Concern Grows About Small Banks’ Exposure to Real Estate Development Loans

Washington, D.C.–Recent Federal Deposit Insurance Corporation information is causing regulators to become concerned that, as home values plummet, small U.S. banks may have too high a concentration of real estate development loans, the Financial Times reports.Banks’ real estate development loan losses in the first quarter were more than 15 times the amount of losses in the first quarter of 2007, the Washington, D.C.-based FDIC said. In addition, more than half of banks with assets worth between $1 billion and $10 billion have commercial real estate loan portfolios that are more than 300 percent of their capital.Nearly 30 percent of U.S. community banks are carrying construction and development loans worth more than 100 percent of capital.Because small U.S. banks recognize such losses differently, regulators have started to force them to value their risk more strictly, Sam Golden, head of financial advisory services at turnaround and restructuring group Alvarez & Marsal and a former senior regulator at the Office of the Comptroller of the Currency, told the Times.Because exposure is high at small banks in troubled housing markets such as Florida and California, some regulators and investors fear that other banks struggling with real estate development loan issues also could have problems finding buyers to offer new capital.