Real Estate Portfolios Expose Local Banks
By CONOR 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 last 10 years, many of them based in Los Angeles.
“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 covering the FDIC’s San Francisco region, which covers 11 Western states, including Alaska and Hawaii.
“Banks with high commercial real estate exposure, in particular construction exposure, have tended to fail more frequently,” said a spokesperson for the FDIC. “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.
American Business Bank was founded in 1994 and has about half of its $111 million loan portfolio in commercial real estate.
The FDIC 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,” said the FDIC spokesperson. “But it sticks out.”