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Special Issue: Central Banker Looks at Commercial Real Estate and Problem Debt

Thursday, January 1, 2009

Commercial real estate lending problems are coming to the fore, possibly creating a one-two punch to banks on the heels of the tremendous losses in residential real estate. Many banks are finding themselves challenged by CRE lending, and others are looking for ways to effectively handle problem assets and troubled debt.

In the Winter 2009 issue of Central Banker, we present four connected articles written by St. Louis Fed experts relating to CRE lending problems and methods for treating troubled assets. In the audio link, Julie Stackhouse, senior vice president and managing officer of the St. Louis Fed’s Banking Supervision, Credit and Center for Online Learning Division, introduces the series.

First, economist Michelle Neely examines challenges in CRE lending for Eighth District banks and runs the numbers to project when commercial and industrial vacancy rates will finally peak in several District metro areas.

Next, senior examiner Sam Ciluffo and supervisory examiner Carl White in the Banking Supervision and Regulation division discuss how banks can get back to the basics on CRE lending. Doing so can help provide a proactive risk management strategy that is critical to managing CRE credits.

Next, Jim Warren, supervisory examiner for safety and soundness, explores the criteria that make a financial institution’s debt restructuring no longer a simple refinancing but a troubled debt restructuring, and what banks can possibly do about it.

Finally, Tim Bosch, vice present over safety and soundness examinations, and Pat Pahl, senior coordinator for new member banks, detail how banks can legally transfer troubled assets to bank holding companies under the Federal Reserve Board of Governors’ Regulation Y, thereby lessening the negative impact on a bank’s portfolio.