The Federal Reserve Board published a note examining commercial real estate (CRE) lending at regional and small banks, finding that a subset of high-growth institutions with assets below USD 100 billion has become a large source of new CRE credit and depends disproportionately on deposits raised in the same local markets as the financed properties. The note says this geographically concentrated funding model could make local CRE credit more vulnerable to region-specific deposit shocks because these banks do not appear to fund growth through diversified deposit footprints or internal transfers across regions. Using loan-level origination data from 2015 to 2024, the analysis shows CRE originations by banks under USD 100 billion rose seven-fold from USD 38 billion to a peak of USD 262 billion in 2022, while originations by larger banks fell 40 percent from USD 237 billion to USD 133 billion over the same period. The identified high-growth banks increased originations ten-fold by 2022 and accounted for almost 40 percent of total sample CRE originations by 2024. Their portfolios shifted toward construction lending, with construction loans rising from 10 percent of originations in 2015 to 40 percent in 2024, while office and retail shares declined. Compared with peer banks, they had slightly lower Tier 1 capital ratios and net interest margins but lower delinquency ratios, and the link between local deposit share and CRE growth was materially stronger, especially at banks with more than USD 5 billion in assets. The note adds that the mechanism behind this local funding preference remains an open research question and that the findings are correlational rather than causal.
Federal Reserve Board 2026-05-01
Federal Reserve Board note finds high growth regional and small CRE lenders rely more on local deposits
The Federal Reserve Board analyzed commercial real estate lending at regional and small banks, finding that a subset of high-growth institutions with assets below USD 100 billion has become a major source of new CRE credit and relies heavily on deposits raised in the same local markets as the financed properties, increasing vulnerability to region-specific deposit shocks. Using 2015–2024 loan-level data, the note shows CRE originations by banks under USD 100 billion rose seven-fold to a 2022 peak, with high-growth banks accounting for almost 40 percent of sample originations by 2024 and shifting strongly into construction lending. These banks exhibited slightly lower Tier 1 capital ratios and net interest margins but lower delinquency ratios than peers; the relationships are correlational, not necessarily causal.