According to American Banker, the government agency cited uncertainty surrounding labor and commerce following the coronavirus outbreak as the primary reason for the increased checks and balances.
The FDIC’s Summer 2022 Supervisory Insight bulletin states that there will be a greater emphasis on new loan activity, as well as subsectors and geographical locations suffering difficulty.
Although the majority of the banks under the FDIC’s supervision are smaller organizations, these businesses have made sizable loans to the sector. During the previous year, banks under FDIC supervision owned 41% of the $2.7T in commercial real estate loans.
Sectors are not being impacted evenly. According to the analysis, pandemic trends like the shift from in-person to online buying, particularly in denser urban regions, might pose problems for the portfolio health of banks.
FDIC inspectors are still circumspect even if default rates for homes affected by the pandemic are not double-digit high as they were in 2020.
Several local banks have begun to keep an eye out for any industry weak spots. Executives at Fifth Third Bank increased reserves in their commercial real estate portfolio, citing “key risks” such rapid rate increases and labor shortages.
Since the majority of its transactions have been with small CRE clients in the previous six months, First Republic Bank Chief Banking Officer Michael Selfridge stated during an earnings call that the bank has also been extra cautious and selective.
