These reports were so widespread that the Government Accountability Office (GAO) conducted a study on supervision of CRE lending and concluded that the guidance warranted clarification.6 Federal Reserve staff is working with the other agencies on ways to clarify the expectations of the interagency CRE guidance and reduce any unintended restrictions on sound lending.
Given the high level of losses experienced on construction and land development projects over the past several years and the number of failed banks with high concentrations of such lending, it seems prudent for banks to keep construction loan exposures at, or even well below, 100 percent of capital.