In addition, while lending to different geographic areas can provide diversification, bankers should be mindful of potential problems when they begin to lend outside their market or "footprint," where they normally have better market intelligence. In recent years, supervisors have observed banks lending outside their established footprint - to maintain a customer relationship - into real estate markets with which they have less experience.
One misconception about our draft CRE guidance relates to the proposed explicit thresholds. Contrary to what many think, these thresholds are not intended as hard limits. Rather, the thresholds should be viewed as supervisory screens that examiners should use to identify banks with potential CRE concentration risk. Examiners would expect organizations to strengthen their portfolio risk management as CRE concentrations grow.