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Home / Articles / BANK Wire: Study links higher CRE concentrations with bank failure

BANK Wire: Study links higher CRE concentrations with bank failure

June 11, 2013


The Federal Reserve and the OCC recently published a joint white paper that analyzes the impact of the OCC’s 2006 commercial real estate (CRE) concentration guidance. That guidance urged banks to implement enhanced credit risk controls if:

1.    Construction, land and land development loans represent 100% or more of total risk-based capital, or

2.    Total CRE loans represent 300% or more of total risk-based capital and the outstanding balance of their CRE loan portfolio has increased by 50% or more during the previous three years.

According to the white paper, banks that exceeded these criteria were far more likely to fail. For example, 13% of banks that exceeded the first concentration level and 23% of banks that exceeded both levels failed during the 2008-2011 downturn, compared to 0.5% of banks that stayed at or under the recommended levels.

Account-opening bonuses: Handle with care

Banks sometimes offer account-opening bonuses to customers as an incentive to save. In a recent private letter ruling (201340043), the IRS addressed the issue of whether a financial institution has a tax-reporting obligation with respect to bonuses for new IRAs or Section 529 college savings plans.

The IRS concluded that bonuses credited to IRAs are similar to payments of interest or dividends. Therefore, the institution in question had no tax-reporting obligation with respect to them. But bonuses credited to Sec. 529 plans, which are established and maintained by the state, are more akin to third-party contributions. As such, they are income to the account owner and reportable by the institution to the extent that reportable payments total $600 or more.

Mobile banking shows swift rise

In March 2013, the Federal Reserve Board published a report entitled Consumers and Mobile Financial Services 2013. Based on a November 2012 survey, the report indicates that consumer use of mobile financial services has grown since the Fed’s previous survey in December 2011. For example, 28% of all mobile phone users and 48% of all smartphone users reported using mobile banking in the preceding 12 months, up from 21% and 42%, respectively, in the earlier survey.

Mortgage rule compliance guide

The Consumer Financial Protection Bureau has published a guide designed to help smaller lenders implement the “Ability-to-Repay and Qualified Mortgage Rule,” adopted in January, which requires mortgage lenders to make a reasonable, good-faith determination of a borrower’s ability to repay a loan. Lenders that offer “qualified mortgages” are presumed to be in compliance. Click here to access the guide.

For more information contact David Klopfer at [email protected].

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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