A new data analysis has determined 59 of the nation’s largest banks face exposures to commercial real estate greater than 300% of their total equity capital.
The data analysis was published by Dr. Rebel A. Cole, Lynn Eminent Scholar Chaired Professor of Finance in Florida Atlantic University’s College of Business. Flagstar Bank, Zion Bancorp, Valley National Bank, Synovus Bank, Umpqua Bank and Old National Bank were cited as the banks most at risk, with each carrying more than $50 billion in total assets. Cole noted that bank regulators consider ratios over 300% as excess exposure to CRE, which places banks at greater risk of failure.
“Regulators have been putting pressure on banks to reduce their exposures,” said Cole. “However, it’s a very difficult thing to do without sending a signal of weakness to the market and creating more problems. To get around this, many banks are ‘extending and pretending’ by restructuring their loans.”
Among banks of any size during the fourth quarter, 1,788 had total exposures greater than 300%, up from 1,697 in the third quarter; 1,077 had exposures greater than 400%, up from 971 in the third quarter; 504 had exposures greater than 500%, up from 426 in the third quarter; and 216 had exposures greater than 600%, up from 166 in the third quarter Q3.
For comparison, the aggregate industry total exposure in the fourth quarter was 132% of the total, unchanged from the third quarter of 2024.
“Banks choose to extend these loans, hoping interest rates might drop. While the Fed did cut rates,” Cole said. “If a loan is maturing from five years ago in today’s rate environment, rather than refinance it with today’s terms, they will restructure the loan under the same terms from five years ago for another year. This all depends on interest rates falling, which is not likely to happen this year.”
