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BANKING
REGULATIONS RELATING TO COMMERCIAL REAL ESTATE
Commercial Real Estate (CRE) loans are one of the largest asset types on most bank balance
sheets. It is not uncommon for a bank to have more than 500.0 percent of its capital in CRE loans. Over the past
15 years this has created concerns for regulators. In the early 1990's CRE loan losses were blamed for many of the
bank failures in the U.S. Since then, banks have improved their underwriting and monitoring of CRE loans.
Regulators also have better tools to monitor and oversee CRE concentrations in banks. Regulators, however, continue to
have concerns about CRE concentrations. In response to their concerns, the primary financial institution regulators
issued a Supervisory Letter that addresses Sound Risk Management Practices for CRE lending.
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