This advisory to insured state non-member banks and savings associations (FDIC-supervised institutions) reemphasizes the importance of strong capital, appropriate credit loss allowance levels, and robust credit risk-management practices when managing commercial real estate (CRE) concentrations. This advisory replaces an advisory issued in 20081 that emphasized these same points during a time when CRE market conditions had weakened, most notably in the construction and development (C&D) sector.
This advisory conveys several key risk management practices for FDIC-supervised institutions to consider in managing CRE loan concentrations in the current challenging economic environment. The advisory also continues to emphasize the importance of effectively managing liquidity and funding risks, which can compound lending risks, particularly for CRE- concentrated institutions. This advisory does not create new risk management principles; however, it does update and build upon previously issued guidance.
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