I would now like to turn to two examples highlighting the importance of risk management for smaller banks: credit concentrations and business disruptions. Lending concentrations As any banker worth his or her salt knows, lending concentrations must be carefully identified, monitored, and managed. It is one of the basics of banking to understand the consequences of placing all your eggs in one basket.
Naturally, supervisors from time to time have concerns about growing credit risk concentrations at banks and bankers’ ability to manage them. A current example is commercial real estate (CRE). The U.S. banking agencies recently issued proposed guidance on CRE lending, and a major portion of that guidance is directed at CRE concentrations. The agencies have received many comment letters on the proposed guidance.