140 likes | 267 Views
Foundation for Accounting Education 2008 Banking Conference September 25, 2008. Current Regulatory Issues. James C. Watkins Deputy Regional Director FDIC, New York Region. Examination Trends. Commercial Real Estate Growth in CRE and C&D Concentrations
E N D
Foundation for Accounting Education 2008 Banking Conference September 25, 2008 Current Regulatory Issues James C. Watkins Deputy Regional Director FDIC, New York Region
Examination Trends • Commercial Real Estate • Growth in CRE and C&D Concentrations • Concurrent Asset Quality Deterioration • Funding Pressures • Reliance on Brokered Deposits • Absence of Contingency Planning 2
CRE Concentrations Continue to Rise Despite Deteriorating Market Conditions % of Institutions with CRE Concentrations > 600% > 500% to 600% > 400% to 500% > 300% to 400% 3
Higher Risk C&D Concentrations Have Grown Even More Rapidly % of Institutions with C&D Concentrations > 300% > 200% to 300% > 100% to 200% 4
Banks Concentrated in C&D Lending are Evidencing Higher Levels of Deterioration Median Past Due C&D Loans (%) by Concentration Level > 300% > 100% to 200% > 100% to 200% Less than 100% = 0% 5
Banks in Southeast and West Tend to have Higher CRE Concentrations 6
What Examiners are Seeing • Inappropriate Use of Interest Reserves • Inadequate Financial Analysis • Inadequate Loan Loss Reserves • Inadequate Valuations 8
Percent of Assets Funded by Core Deposits at FDIC-Insured Institutions 10
Brokered Deposit Reliance Could Become an Issue for Some Banks 11
What Examiners are Seeing • Failure of banks to understand definitions of a brokered deposit • If a Bank is less than Well Capitalized: • it must seek a waiver to accept, roll-over or renew brokered deposits; and • it is by definition a deposit broker, so deposit rate limits kick in for ALL of the bank’s deposits. • If a Bank is less than Adequately Capitalized, it may not accept, roll-over or renew brokered deposits. 12
What Examiners are Seeing • Failure of bank liquidity contingency plans to consider that: • Lenders may impose higher haircuts, reduced durations, higher rates, or limits on eligible collateral as asset quality deteriorates; • Correspondent banks may terminate relationships as overall financial condition deteriorates; and • Systemic shocks can cause entire asset classes to become illiquid (certain MBS) and entire classes of funding sources to become unattractive (ABCP and securitizations). 13
Closing Comments Questions? 14