CRE Concentration
CRE concentration is the size of a bank’s commercial real estate loan book relative to its capital. Under interagency guidance from the FDIC, Federal Reserve and OCC, banks whose CRE lending crosses set thresholds draw closer supervisory review of how they manage that risk.
The two thresholds
The 2006 interagency guidance on concentrations in commercial real estate lending names two screens, measured against the bank’s total capital (in call report analysis, commonly tier 1 capital plus the allowance for credit losses). A bank may be identified for further supervisory analysis if:
- Construction, land development and other land loans are 100% or more of total capital, or
- Total CRE loans are 300% or more of total capital, and the CRE portfolio has grown 50% or more over the prior 36 months.
What crossing them means
The thresholds are not limits. A bank above them is not breaking a rule, and many well-run community banks operate there for years. What changes is the scrutiny: examiners expect board-approved concentration limits, stress testing of the CRE book, strong appraisal and underwriting standards, and capital that reflects the risk. Banks that cannot show those controls can face pressure to slow CRE growth or hold more capital.
Owner-occupied commercial property is excluded from the total CRE measure, because repayment depends on the occupant’s business rather than rents or a sale. Multifamily, non-owner-occupied office, retail and industrial property, and construction loans all count.
Why community banks run close to the line
CRE is where many community banks have a real advantage: local knowledge of properties, developers and markets that national lenders do not have. It is also where consumer and small business lending has drifted away to fintechs and larger banks, leaving CRE as a larger share of what remains. RAVEN’s analysis of OptimumBank walks through the 300% test using a real call report.
Common questions
What is the 300% CRE concentration test?
Under 2006 interagency guidance, a bank whose total commercial real estate loans are 300% or more of total capital, with CRE growth of 50% or more over the prior 36 months, may be identified for closer supervisory review.
Is it illegal for a bank to exceed 300% CRE concentration?
No. The thresholds are screening tools, not limits. Banks above them are expected to show stronger risk management, including concentration limits, stress testing and adequate capital.
Do owner-occupied commercial loans count toward CRE concentration?
No. Loans secured by owner-occupied commercial property are excluded from the total CRE measure, because repayment comes from the operating business rather than the property.