Bank Failures Explained: Questions, Answers and How CRE Fits In

How important are community and regional banks to CRE? QUESTION FOUR

Community and regional banks are the lifeblood of the CRE lending landscape among the banks, which collectively have $2.8 trillion in loans associated with our concept of “CRE.” 1 In our industry, many use these bank-size designations colloquially, but the Fed and FDIC mean specific things when they talk about ‘community or regional banks,’ so we’ve clarified the asset sizes associated with those terms. Big banks (above $250 billion in assets) account for about 55% of total assets in the banking system, 45% of all lending, 27% of all multifamily lending, 20% of all nonfarm nonresidential lending and 18% of all ADC lending. 2 Big banks account for 28% of unused CRE credit lines. Super-regional banks ($100 billion to $250 billion in assets) account for 15% of total assets in the banking system, 17% of all lending, 14% of all multifamily lending, 10% of all nonfarm nonresidential lending and 9% of all ADC lending. Super-regional banks account for 10% of unused CRE credit lines. Regional banks ($10 billion to $100 billion in assets) account for 15% of total assets in the banking system, 19% of all lending, 32% of all multifamily lending, 32% of all nonfarm nonresidential lending and 34% of all ADC lending. Regional banks account for 35% of unused CRE credit lines.

Community banks (under $10 billion in assets) account for 15% of total assets in the banking system, 19% of all lending, 27% of all multifamily lending, 39% of all nonfarm nonresidential lending and 39% of all ADC lending. Community banks account for 27% of unused CRE credit lines. The point here is that the smaller banks that comprise a relatively smaller share of total assets also are responsible for a majority of multifamily, nonfarm nonresidential and ADC lending (within the banking sector). This was true before the pandemic, and it’s true now. Thus, it always matters how smaller banks behave with respect to CRE lending, risk appetite, underwriting standards and their own risk management. It will also matter if these banks experience their own panics/bank runs, even though we do not think that is likely. The smaller the bank, the less reliant on securities with interest rate risk and the greater the share of deposits that are guaranteed. However, the smaller the bank, the greater the concentration of CRE credit risk, too.

Important. ANSWER

1 Note that the Fed and FDIC refer to CRE as the sum of nonfarm nonresidential, multifamily, ADC and farm lending. We exclude farm-related lending from our nomenclature . Specific language is used to ensure there is no confusion about the underlying statistics being cited and we adjust “CRE” totals to exclude farm loans. 2 Based on data from the FDIC as for Q4 2022. ADC is acquisition, development and construction.

Bank Failures Explained - Questions, Answers and How CRE Fits In

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