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Much to the consternation of many small and medium-sized banks, federal regulators are clamping down on the proportion of commercial real estate [CRE] loans within bank portfolios. The Federal Reserve, the Comptroller of the Currency and the FDIC have proposed thresholds that are designed to avoid dangerously high concentrations of CRE loans that could spell disaster for smaller banks in the event of a serious economic downturn. Though the regulators have not imposed explicit limits on CRE lending, many bankers fear the regulatory scrutiny triggered by the crossing of the suggested thresholds will function as a de facto limitation. The regulators' goal is to avoid a repetition of the 1980s scenario in which many banks failed when the real estate market collapsed.
• Sources: Wall Street Journal, USA Today, Reuters, New York Times
• Related commentary: U.S. Housing Weakness Hits HSBC
• Potentially impacted stocks and ETFs: US Bancorp (NYSE:USB), Wachovia (NASDAQ:WB), Wells Fargo and Co. (NYSE:WFC), iShares S&P Global Financials (NYSEARCA:IXG), Vanguard Financials ETF (NYSEARCA:VFH), streetTRACKS KBW Bank ETF (NYSEARCA:KBE), Regional Bank HOLDRs Trust Regional Bank HOLDRs Trust (NYSEARCA:RKH)

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Source: Fed Regulators Restrain CRE Lending