This extra supply is particularly problematic because demand is quite low. High unemployment and tight credit standards are currently precluding many families from buying homes, and other potential buyers may be staying out of the market due to uncertainty about their incomes.
This means considering how much capital can be placed at risk if the portfolio of CRE loans hits a stress period and comparing that loss exposure to the relative returns in CRE lending. As banks increase their concentration in CRE, supervisors will expect to see bankers pay greater attention to strengthening their portfolio risk management practices.