CRE lending in recent years has occurred under fairly benign credit conditions, but those conditions are unlikely to continue indefinitely. The ability of banks with significant concentrations to weather difficult market conditions will depend heavily on their riskmanagement processes and their level of capitalization.
From a risk-management and capital perspective, institutions should generally focus on the emerging conditions in their real estate markets and on the potential cumulative impact on their portfolios if conditions deteriorate; they should also take other measures to help identify CRE vulnerabilities. Of course, these measures should vary according to the size of the organization and the level of the concentration.