Real Estate Portfolios Expose Local Banks
By CONNOR DOUGHERTY
A report by the Federal Deposit Insurance Corp. said that expanding commercial real estate and construction portfolios might cause problems for West Coast banks if the economy continues to falter.
The FDIC also expressed concern about the number of new banks that have been formed in the past 10 years.
“Brisk bank chartering activity in the years before a recession, which contributed to the high number of failures during the early 1990s, remains an area of concern for the region,” said a third-quarter report.
“Banks with high commercial real estate exposure, in particular construction exposure, have tended to fail more frequently,” said a spokesperson for the Federal Deposit Insurance Corp. “The case in Southern California has shown this is relevant.”
It is a point the banks dispute.
“The banks themselves aren’t the issue, it’s the relative experience of the bankers,” said Robert Schack, chairman of American Business Bank of Los Angeles.
The Federal Deposit Insurance Corp. spokesperson was quick to note the third quarter report was just that, a report, but cautioned that history has shown young banks and banks with large concentrations of commercial real estate loans are the first to fail when tough times persist. “Are we as concerned as we were ten years ago? Probably not,” the spokesperson said. “But it sticks out.”
Dougherty is a staff reporter at the Los Angeles Business Journal.
