Nov. 14, 2000, 9:41PM
FDIC warns that too many loans for property deals threaten banks
Bloomberg Business News
WASHINGTON -- Banks are facing increased risk from real estate loans, Federal Deposit Insurance Corp. Chairwoman Donna Tanoue warned Tuesday.
"The FDIC is especially watchful of steadily increasing volumes of construction and development loans and commercial real estate loans," Tanoue told members of the Risk Management Association in Nashville.
Problems in the commercial real estate market contributed heavily to the banking crises in the United States in the early 1990s and in Asia during the late 1990s, she added.
The speech was part of an agency campaign to alert banks to rising economic risks. It has already warned that banks' syndicated loan portfolios are increasingly vulnerable.
"Conditions are indeed favorable for damage in the event of a downturn," Tanoue said.
"We believe that some banks have developed certain portfolio characteristics that leave them vulnerable to potential softening in local real estate markets."
The agency estimates that 9 percent of banks are "very vulnerable" to an economic downturn.
The percentage of institutions that the agency considered very vulnerable between 1987 and 1995 never exceeded 5 percent, Tanoue said.
The FDIC estimates that another 16 percent of the banking industry is "somewhat vulnerable" to an economic downturn, Tanoue said.
Tanoue said large syndicated loans, which are shared among banks to spread risk, are actually jeopardizing some banks.
Banks with loans concentrated in areas where there is overbuilding are particularly vulnerable, Tanoue said.
The risk to banks is much higher in certain areas, she said.
Nearly 70 percent of the banks in Atlanta have high-risk portfolios and 55 percent of the banks in Portland, Ore., are "very vulnerable," Tanoue said.
In September, the FDIC added Denver; Seattle; Fort Worth;
Jacksonville, Fla.; and Sacramento, Calif., to a list of metropolitan areas at risk from overbuilding.
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