This is a great article with more evidence that our economy IS real estate.
But dont worry. It's never been a problem before...
Bankers and Regulators Clash Over Surge in Real-Estate Loans
Commercial-Property Focus Worries Federal Agencies; Executives Resist Curbs A Thousand Protest Letters
September 11, 2006
BAITING HOLLOW, N.Y. -- Federal regulators are trying to hit the brakes on commercial real-estate lending. That annoys Bradley Rock, the chief executive officer of Smithtown Bancorp Inc.
Wheeling his black Lexus sedan toward the clubhouse of the Fox Hill Golf & Country Club, Mr. Rock gazed at the lush fairways of the 175-acre property, appraised at more than $15 million. The owners of the club owe $2.7 million to his bank. "You could sell the property for massively more than the debt," Mr. Rock said. "It's impossible for the bank to lose money."
Like thousands of community banks across the U.S., Smithtown, of Hauppauge, Long Island, has feasted on commercial real-estate loans. About 80% of Smithtown's $800 million loan portfolio is concentrated in that category, which Mr. Rock calls "the last safe, profitable niche" for community bankers trying to compete against giant banks. The banks consider these loans -- the $1 million to $10 million loan to a home builder or strip-mall owner -- to be their sweet spot.
To bank regulators, the rapid growth in commercial real-estate loans -- up 16% in 2005 alone to $1.3 trillion -- is alarming. In January, four regulatory agencies, including the Federal Reserve, proposed a clampdown. In a draft of new "guidance," they said banks exceeding certain levels of lending in construction and commercial real estate should step up risk monitoring or add capital, or both.
Commercial real-estate loans "can be the sweet spot -- or the tar pit" for banks, says Susan Bies, a governor of the Federal Reserve. It supervises bank holding companies and about 900 state banks, including the Bank of Smithtown, a wholly owned subsidiary of Smithtown Bancorp.
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The regulators conjure up memories of the late 1980s and early 1990s, when aggressive lending led to overbuilding, vacant properties, price collapses and huge losses for taxpayers. From 1987 through 1994, more than 1,100 banks and nearly 1,000 savings-and-loan institutions failed or required financial assistance, according to the Federal Deposit Insurance Corp.
"It is hard to overstate the impact of that crisis on our economy," John Dugan, the comptroller of the currency, said in a speech to New York bankers in April. Mr. Dugan's agency, part of the U.S. Treasury, supervises more than 2,500 nationally chartered banks.
