Regulators give guidence to banks on troubled commercial real estate loans

by LJ Miehe on October 15, 2009

These banks are going to need to start restructuring these deteriorating commercials loans or risk defaults and even larger write-downs.  That will lead to the FDIC stepping in and closing the bank.  I am surprise the banks are not lobbying Congress more loudly to get a program in place to refinance these loans.

The problem I assume that are making the commercial banks reluctant to restructure these loans are the fact that they were written at a higher level of valuation and if they have to rework the commercial loan to a lower valuation, the bank will need to write down their capital and that would in effect lower their capital reserves and would bring them closer to being in a situation that the FDIC would close them down.

This is why I am more convinced that once our regulators are ready to confront this problem, they will create a government sponsored program to refinance these commercial loans and in effect that would bring them off the balance-sheet of these commercial banks without making them a much higher risk of being shut down.

Even the regulators in the press release said even though there are signs of sectors in the economy recovering, it remains fragile.

Reuters Press Release

Previous post:

Next post: