Small and Mid-Sized U.S. Banks Have Large Share of CRE Loans in Their Portfolios

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The total number of banks in the U.S. declined further last year. At the end of 2008, about 7,100 banks were in operation compared to 7,300 in 2007 as per the Federal Reserve Bulletin, June 2009.

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From over 12,000 in 1990, the number of banks has fallen to 7,100 last year. The share of assets held by the largest 10 banks grew by 1% and the assets of the top 100 banks grew by 1.5%. These two categories of banks accounted for 54% and 82% of all total assets at the end of 2008.

Commercial Real Estate mortgages have started to go bad following the path of residential mortgages. However CRE mortgages form a major portion of the small-to-medium sized banks as opposed to large banks.


Source: Profits and Balance Sheet Developments at U.S. Commercial Banks in 2008, Federal Reserve Bulletin, June 2009

As the chart shows, the share of CRE loans relative to total loans is very high for small to medium-sized banks. When more CRE borrowers default in the coming months, those small and medium banks that have high exposure to this type of loan will have more losses. The Federal Reserve defines the size of the bank as the total assets held at the start of each quarter. This past Friday the FDIC shut down four banks. Banks that are located in the bubble states of California, Florida, Nevada and Arizona with high CRE loans on their books may be adversely affected.