A top U.S. regulator has sounded a new alert over banks’ commercial real estate (CRE) lending, adding to concerns that bubbles may be forming in parts of the country’s property market, the Financial Times reported today. Thomas Curry, comptroller of the currency, used the watchdog’s twice-yearly report on financial risks published yesterday to warn about looser underwriting standards and concentrations in banks’ CRE portfolios. The remarks come after his office, together with regulators at the Federal Reserve and the Federal Deposit Insurance Corporation, said last year that they would “pay special attention” to banks’ commercial property lending. Yet banks have continued to expand in the area, helping to fund development of shopping centres, apartment blocks and other commercial projects. CRE loans originated by banks in the first quarter leapt by 44 per cent from the same period in 2015, according to Morgan Stanley. Banks’ share of CRE originations has risen from just over a third in 2014 to more than half in the first quarter of 2016 — a record. Mr. Curry suggested CRE was of even greater concern to regulators than both car loans — an area into which some banks have expanded aggressively — and lending to already-indebted companies. “While leveraged lending and auto lending remain concerns, CRE lending and concentration risk management has become an area of emphasis for regulators,” he said in a speech. “Our exams found looser underwriting standards with less-restrictive covenants, extended maturities, longer interest-only periods, limited guarantor requirements, and deficient-stress testing practices.”
