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A US regulator is already worrying about the next property bubble 

July 13, 2016

Ben Moshinsky, Business Insider UK

A US regulator warned that banks risk inflating a commercial real estate (CRE) bubble.

Thomas Curry, US comptroller of the currency, said banks were easing checks on borrowers and boosting loans to investors in the sector.

This creates more debt of a poor quality, at a time when valuations of the underlying property assets are already stretched.

"It’s at this stage of the cycle that we also see strong loan growth combined with easing underwriting to result in increased credit risk," Curry said in a speech on Monday. "At the end of 2015, 406 banks had CRE portfolios that had grown more than 50 percent in the prior three years.  Of note, more than 180 of these banks more than doubled their CRE portfolios during the past three years."

The combination of high debt levels and lax risk management could prove to be toxic, Curry said: "At the same time we are seeing this high growth, our exams found looser underwriting standards with less-restrictive covenants, extended maturities, longer interest-only periods, limited guarantor requirements, and deficient-stress testing practices."

 
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