Stop lending? Small New Jersey banks stop CRE lending, per FDIC

This report highlights the problems CRE is going to have over the next 12-18 months making a rebound. On its face, reducing a bank's exposure to CRE makes sense. However, underlying that assumption is 1) CRE is only getting worse, and 2) there are no "safe" investments. For #1, the best way to make CRE worse is to further tighten lending. So this is a self-fulfilling problem. As to #2, it could not be further from the truth. There is still plenty of quality real estate. Although fundamentals have certainly been hit, strong tenancy and underlying credit is still in the marketplace. The bottom line is that seeing headlines like this is not surprising, but is unfortunate. One of the best places to find leverage in today's market are smaller, regional banks that have strong underwriting standards and long relationships that provide them a better sense of risk. One wonders whether the FDIC appreciates those factors.