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Commercial Real Estate Lenders Could Face Higher Capital Requirements

Many firms stacked their balance sheets with Commercial Real Estate (CRE) loans in recent years, particularly in areas such as multifamily lending. Now there is evidence regulators may soon require those banks to maintain higher capital ratios. Suffolk Bancorp in Riverhead, New York expects the Office of Comptroller of the Currency (OCC) to require its bank to maintain a 12% total risk-based capital ratio. More institutions could soon be followed the same requirements.

Banks that feast on commercial real estate better have plenty of capital set aside. Regulators have been paying close attention to banks where CRE loans make up 300% of total risk-adjusted capital, particularly as a result of ramped-up originations over the last three years. Those trends are evident at more than two dozen banks covered by KBW Bank Index. While several institutions are multifamily lenders in New York, the list also includes California companies such as Opus Bank, BBCN Bancorp, and PacWest Bancorp, as well as Bank of the Ozarks, BNC Bancorp and Stonegate Bank in the Southeast. The capital requirements would be significantly higher than the typical standard for well-capitalized banks, which have to maintain a 5% Tier 1 leverage ratio, an 8% Tier 1 risk-based capital ratio and a 10% total risk-based capital ratio.

News Characteristics

Date : May 03, 2016
Region : North America
Industry : Banks
Function : Regulation and Compliance
Sub-Function : Regulatory changes