WASHINGTON - Federal Deposit Insurance Corp. Chairman Donna Tanoue warned Tuesday that a growing number of banks are overexposed to commercial real estate loans and therefore particularly vulnerable to an economic downturn.

Nine percent of banks and thrifts risk a downgrade in their supervisory rating because of a high ratio of construction and development loans to assets, rapid asset growth, and high noncore funding, Ms. Tanoue said. That is nearly twice the percentage in 1995. "We believe that some banks have developed certain portfolio characteristics that leave them vulnerable to potential softening in local real estate markets," Ms. Tanoue said at a Risk Management Association conference in Nashville.

She said the agency used a "real estate stress test" to predict the number of institutions that could end up on the problem bank list if a crisis occurred, and found that the number had increased dramatically since 1995.

FDIC officials declined to specify the lending ratios or concentration levels that would make banks vulnerable because, they said, the determination depends on a combination of factors that are weighted for each financial institution. But Ms. Tanoue put the consequences in terms that bankers can understand.

An economic crisis could quickly drive banks with top Camels ratings of 1 or 2 that are overexposed on commercial real estate credits to scores of 4 or 5, which are the lowest. In that event, a bank would be charged deposit insurance premiums and would face more intense examinations from regulators.

Ms. Tanoue said commercial real estate loans grew to $447 billion in June from $258 billion at the end of 1992, while construction and development loans have more than doubled to $150 billion from the industry's low point in 1994. Construction and development loans grew 21% in 1998 to $106.7 billion, while in 1999 those loans grew 27% to $135.6 billion.

"That brings one to wonder: Can there be too much of a good thing?" Ms. Tanoue asked.

Ms. Tanoue said the FDIC was especially concerned because problems in the commercial real estate markets helped cause the banking crisis in the 1980s and were at the heart of the Asian economic crisis two years ago.

Industry representatives said they welcomed an analysis of commercial real estate risks, but they cautioned regulators against stirring up panic.

"I like the approach which identifies trends and starts a discussion about these issues early in the process," said James Chessen, chief economist of the American Bankers Association. "But I think there is a very fine line between concern and regulatory micromanagement of banks that we have to be careful of."

Stuart G. Stein, a banking lawyer at Hogan & Hartson in Washington, said that the FDIC understandably wants to prevent a repeat of crises faced by lenders in the 1980s.

"Unlike the '80s, however, banks believe their underwriting standards - for example, less lending on speculation - coupled with regulatory standards - for example, requirements for specific policies that establish limits and standards for real estate loans - will help to cushion the impact of a downturn in the real estate market," he said.

Tuesday's warning was Ms. Tanoue's fourth in two months about what might happen in an economic downturn, and the second focusing on a potential real estate crisis.

The FDIC warned in its Regional Outlook in September of possible overbuilding in 12 cities. Ms. Tanoue said Tuesday that several of those cities - Atlanta, Las Vegas, Phoenix, Salt Lake City, Seattle, and Portland, Ore. - also appeared on a list of cities with concentrations of high-risk banks, as determined by the real estate stress test.

"The FDIC is especially watchful of steadily increasing volumes of construction and development loans, and commercial real estate loans in the banking industry in general, particularly when these loans are concentrated in certain markets," Ms. Tanoue said.

She said it was important to focus on the problem now because there is lag time between when bankers agree to finance a new project and when it would be completed.

"High demand and growing demand that may exist when projects are started can sometimes turn into little demand and no growth by the time projects are completed," Ms. Tanoue said. "This can cause large decreases in the value of properties, and subsequent loan defaults, and loan losses for the project's lender."

Ms. Tanoue said that though some banks have responded to the warnings by slowing real estate lending or tightening underwriting standards, others are ignoring any signs of a problem.

"I too hope that the economic expansion will continue unabated and that local real estate markets remain healthy and stable. However, as you know, hope is not a risk-mitigation technique," Ms. Tanoue said.

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