|
|
What
is the major change brought about by the recent CRE concentrations guidance?
Institutions with CRE concentrations will be required to enhance their risk management systems and conduct ongoing risk
assessments. Institutions that do not have sufficient internal systems may be required to raise capital
or reduce their investment in CRE lending. At a minimum, high concentration institutions will be required
to review and most likely update their internal practices and processes over CRE concentrations.
Will the new guidance increase my capital requirements?
Possibly. The guidance specifies that banks with high
CRE concentrations must have risk management systems and capital commensurate with the higher risk implicit in the CRE concentration.
This implies that regulators may be able to dictate capital levels for those institutions with high concentrations
in CRE. The guidance gives regulators considerable leeway in determining what is an “acceptable”
level of capital and CRE concentration.
What measures should we undertake to prepare
for the guidance?
The regulatory thrust appears to be to determine whether banks that have high CRE concentrations also have adequate
internal management systems to oversee and control the exposure. Banks should first perform a self assessment
of the existing system. The assessment should be in writing and directed to senior management and the board.
The bank then needs to determine how much to invest in enhancing the existing system as needed.
What is the advantage of using an
outside vendor to assist with the assessment?
The primary reason is independence. Other considerations are price and expertise.
While you can do a CRE Concentration assessment in-house, it may be appropriate to utilize vendors with specific CRE
experience and preferably recent regulatory experience. Using an outside vendor also does not disrupt existing
job responsibilities and does not tie up employees unnecessarily.
|