Concentration Risk in commercial lending practice
Regulators monitor concentration risk closely in commercial lending. The most prominent threshold for community banks is the FDIC/OCC interagency guidance on commercial real estate: CRE loans exceeding 300% of total capital trigger enhanced supervisory scrutiny. Other tracked concentrations include borrower-level exposures (legal lending limits), industry concentrations (e.g., hospitality, energy), and geographic concentrations. Credit memos for banks at or near concentration thresholds need stronger per-deal stress testing and sensitivity analysis.
Related terms
Related concepts in commercial underwriting
CRE (Commercial Real Estate)
Real property used for business purposes, including office, retail, industrial, multifamily (5+ units), and hospitality properties.
Read definitionMRA (Matter Requiring Attention)
A finding issued by bank examiners during a regulatory examination that identifies a deficiency requiring corrective action.
Read definitionStress Testing
The process of evaluating a loan's performance under adverse scenarios such as rising interest rates, declining revenues, increased vacancy, or economic recession.
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