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OCC Bulletin 2006-46 | December 6, 2006

Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices: Interagency Guidance on CRE Concentration Risk Management


Chief Executive Officers of All National Banks and National Bank Operating Subsidiaries, Department and Division Heads, and All Examining Personnel

As of May 17, 2012, this guidance applies to federal savings associations in addition to national banks.*

The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation are jointly issuing the attached Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices (guidance).

Strong risk management practices and appropriate levels of capital are essential elements of a sound Commercial Real Estate (CRE) lending program. Concentrations of CRE exposures add a dimension of risk that compounds the risk inherent in individual loans. The guidance sets forth sound risk management practices that an institution should employ when it has CRE concentration risk. Credit concentrations are broadly defined as groups or classes of credit exposures that share common risk characteristics or sensitivities to economic, financial, or business developments. For purposes of the guidance, CRE loans are loans with risk profiles sensitive to the condition of the general CRE market as defined in the guidance.

The guidance does not establish specific limits on CRE lending; rather, it describes sound risk management practices that will enable institutions to pursue CRE lending in a safe and sound manner. These practices include:

  • Board and management oversight
  • Portfolio management
  • Management information systems
  • Market analysis
  • Portfolio stress testing and sensitivity analysis
  • Credit underwriting standards
  • Credit risk review function

As part of their ongoing supervisory monitoring processes, the agencies will use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis to assess the nature and risk posed by the concentration:

  • Total reported loans for construction, land development, and other land loans represent 100 percent or more of the institution's total risk-based capital; or
  • Total commercial real estate loans, as defined in the guidance, represent 300 percent or more of the institution's total risk-based capital, and the outstanding balance of the institution's commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months.

Emory W. Rushton
Senior Deputy Comptroller and Chief National Bank Examiner

*References in this guidance to national banks or banks generally should be read to include federal savings associations (FSA).  If statutes, regulations, or other OCC guidance is referenced herein, please consult those sources to determine applicability to FSAs.  If you have questions about how to apply this guidance, please contact your OCC supervisory office.

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