Local banks still weighed down by commercial real estate

by SoberLook

While the media and politicians have been focused on large commercial banks and their activities, it is often the smaller US banks that continue to struggle with capitalization and stressed/distressed assets. A big part of the issue with small banks is their outsized exposure to commercial real estate. At its peak, nearly 30% of small banks' balance sheets consisted of loans backed by commercial property. Large banks peaked at 11%.

Source: FRB

Large banks have since reduced (as % of assets) their commercial real estate exposure by 35% (from the peak), while small banks have cut it by 24%. As far as their non-performing real estate-backed loans, the bigger banks have largely cleaned up that portion of their balance sheets while many regional and smaller banks have kicked the can down the road. And numerous loans that were restructured in 2011 and 2012 are once again delinquent. The chart below shows the evolution of troubled loans at small and regional banks.

Small and regional banks' real estate backed assets ($bn)

Compared to the money center banks, regional and local banks have a long way to go to resolve their commercial real estate problem.

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