Friday, June 4, 2010

Fed’s Lockhart Says Banks Struggle as Property Prices Fall


June 04, 2010, 11:53 AM EDT

June 4 (Bloomberg)
-- Federal Reserve Bank of Atlanta President Dennis Lockhart said falling commercial property prices pose a growing challenge to banks in the Southeastern U.S., where more failures are likely to occur.By Steve Matthews “Homebuilders indicate that new home sales softened recently but remain above very low levels compared with this time last year.” Lockhart said today in a speech in Braselton, Georgia. “Commercial property markets continue to experience falling rents and rising vacancy rates. Challenging conditions persist, especially in the retail and office markets.”

U.S. banks are collapsing amid losses on residential and commercial real estate loans, and the Federal Deposit Insurance Corp.’s list of “problem” lenders is the longest since 1992. The FDIC included 775 banks with $431 billion in assets on the confidential list of problem lenders as of March 31. Of the 246 bank failures in the past three years, 73 have been from the Atlanta Fed’s six-state region.

“Here in the Southeast, the banking industry still needs more time to heal,” Lockhart said to the Alabama Bankers Association. “To generalize, I believe that banks are stabilizing and, although not improving rapidly, not getting significantly worse as a group. That said, as I look forward, more bank failures in the region are likely.”
Lockhart said a recent survey by the Atlanta Fed suggested loan demand remains “soft,” with many entrepreneurs not requesting credit. The survey released May 28 also reported six out of every 10 applications for credit by small businesses in the Southeastern U.S. in the first quarter were either denied or resulted in less money being loan than requested.

Drop in Credit

The Atlanta Fed leader’s comments echoed the view of Fed Chairman Ben S. Bernanke, who said yesterday he was concerned by a drop in small-business credit and wanted to ensure entrepreneurs have access to loans to hire more people.

Still, U.S. banks posted $18 billion in profits during the first quarter, the highest level in two years, reflecting signs of recovery from the worst recession since the 1930s, the FDIC reported last month.

“A growing body of evidence suggests a sustainable recovery is under way,” Lockhart said. “Regionally, that recovery is not yet well established.”

Lockhart didn’t comment on monetary policy in his prepared comments.

Some U.S. community bankers were overly concentrated in risky real estate loans and used “hot money” from purchased deposits out of their markets, Lockhart said. He blamed regulators for approving too many new bank charters in the Southeast, which led to failures.

“I believe new bank charters have been granted too liberally, and the entry bar needs to be raised,” he said. “As regulators, we’ve learned we need to be more realistic in our assessment of proposed business plans and less tolerant of deviations from those plans.”

Fed Inspector General Elizabeth Coleman has criticized the Atlanta Fed for failing to take stronger action against banks it regulated that failed over the past year.
--Editors: James Tyson, Paul Badertscher

To contact the reporter on this story: Steve Matthews in Atlanta at;

To contact the editor responsible for this story: Christopher Wellisz at