Bad Real Estate Loans Worry Head of FDIC

Federal Deposit Insurance Corp. Chairman L. William Seidman raised an alarm Tuesday about the rapid rise in bank lending toward risky real estate deals.

Nearly half of the bad loans in the U.S. banking system today are bad real estate loans, he said. The problems are particularly serious in Arizona, Florida and parts of the Northeast.

Real estate lending is “an emerging area of real concern for financial institutions and their insurer,” Seidman told the National Council of Savings Institutions.

He cautioned that lending toward risky commercial development ventures could eventually hurt the fund that insures deposits at U.S. banks.

Seidman’s remarks recalled the turmoil in the banks’ sister industry, the savings and loan industry, which had to be bailed out by the government earlier this year.

Many thrifts got into deep trouble after they started making commercial real estate loans in the early 1980s when they were permitted to do so. On Monday, the chief regulator of the thrift industry for the past 2 1/2 years, M. Danny Wall, resigned under fire.

In the Northeast, where an economic boom in the early and mid-1980s has run out of steam, the percentage of bank real estate loans whose payments are more than three months behind has almost doubled over the past year and now exceeds the national average, Seidman said.