SOURCE: East Bay Business Times
Regulators are carefully looking at underwriting practices of commercial lending institutions. It’s uncertain just how strict regulators will be, but new guidelines were issued this year that contain suggested limits for lenders. The suggested limits aren’t caps they are merely suggested limits. However if banks or institutions exceed the limits they will be under the scrutiny of regulators. In such a scenario regulators could require banks to withhold more capital or even to reduce to commercial lending.
Regulators are concerned with the increase in commercial lending over the past 5 years and increase in bank and lending institution commercial loan holdings. FDIC associate director Steve Fritts said, ÒAs we saw portfolios grow, we saw that management of portfolios, and the building of systems to support that, didn’t always keep pace, we wanted to address an issue before it became a problem, and while we believe most banks have done a good job growing that business and building the infrastructure to manage that business, anytime you have rapid growth, it’s a little bit of a flag that you want to control the systems growing with it.” In 2006 commercial loan charge-offs for bad loans and debts increased by 455% compared to 2005.
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