Regulatory & Commercial Update: Turning the Screws
Just a quick newsflash on the tightening bank regulatory environment.
"Deterioration of the commercial real-estate market will lead to rising losses and bank failures in the near future".
"The crisis in the US housing market has had a knock on effect on commercial property".
“There will be more frequent interaction between supervisors and banks with concentrations in CRE loans that are declining in quality,” he said. “There will be more criticised assets; increases to loan loss reserves; and more problem banks. And yes, there will be an increase in bank failures.”
According to the Financial Times of London, these comments were made by John Dugan the U.S. Comptroller of the Currency at a recent conference in Florida. Importantly, Mr. Dugan was recently named chairman of the international Joint Forum an organization that deals with banking, securities and insurance issues and the regulation of multi-national financial conglomerates. Dugan also reportedly issued a warning last week that banks should use market prices, rather than "models ", to value securities even if trading volumes were far below normal.
Remember what I am saying here..... more regulatory scrutiny and tougher underwriting oversight will hurt real estate and the economy if not implemented very carefully.
Banks are already tightening credit on a wholesale basis. According to Inman News, the latest quarterly survey of commercial/multifamily mortgage bankers originations by the Mortgage Bankers Association showed "loan originations sank by double digits in Q4'07 when compared to a year earlier. Total fourth-quarter originations dropped 16% below the level recorded in Q4'06, with the decrease seen across most property types and investor groups... Decreases in total commercial/multifamily mortgage originations were led by a drop in commercial mortgage-backed security [CMBS] conduit loans, which have been impacted significantly by the recent credit crunch and other market disruptions."
Now it looks like the regulators have started turning the screws for real and credit tightening has moved beyond the CMBS market to smaller portfolio lender banks.
The Wall Street Journal has a quote from a small local banker regarding federal examiners currently looking at his bank's books, which really underscores this emerging situation. "They are scrutinizing and really drilling down into the loan portfolio like we've never seen them do in the past." according to Jim MacPhee, CEO of Kalamazoo County State Bank. Another quote from the same article demonstrates this isn't a one off circumstance "I'm hearing from my member bankers that the regulators from state and federal regulatory agencies are really coming in and cracking down," this was according to Camden Fine, president of the Independent Community Bankers of America, a small bank trade group.
From the Blogosphere
Banks Put Stranglehold on Credit
Tighter lending Standards "Hurt" those Needing Help
Lending Standards Tighten Video