In another Bloomberg article today, it was reported that the FDIC basically dropped the ball when it came to enforcing their own guidelines. In 2006, the FDIC set forth guidelines providing that banks should not have commercial real estate holdings that exceeded 300 percent of their capital. I guess it’s pretty fair to say that nobody was really paying attention to those guidelines. Many of the banks that have already failed had commercial real estate holdings that well exceeded the 300 percent threshold and it is almost certain that many of the banks that are currently on the brink of failure are similarly situated.
This is likely one of the major reasons that the FDIC will soon be announcing a set of guidelines for commercial mortgage modifications. You hope that the FDIC will be better at implementing these guidelines than they were at implementing the 2006 guidelines. A comprehensive set of guidelines for the modification of commercial mortgages is likely the only solution for the impending collapse of the real estate markets. Had the banks not been so highly leveraged and had they not so highly leveraged almost all of their loans, the market may not have reached the breaking point that it is currently at. But the banks did not follow the rules and the FDIC did not enforce them, so there is blame to be shared by everyone.