OCC to focus on flow of funds from banks to non-banks

The Office of the Comptroller of the Currency (OCC) will reportedly be focusing more attention on the flows of money from large national bank lenders, which it oversees, to their non-bank counterparts.

The Office of the Comptroller of the Currency (OCC) will reportedly be focusing more attention on the flows of money from large national bank lenders, which it oversees, to their non-bank counterparts.

Non-banks borrow from the banks at relatively cheap interest rates in order to free up their own balance sheets, often relying on warehouse lines of financing for direct lending and CMBS originations.

self-directed-ira-private-lending-300x300One non-bank CMBS investor and originator told Real Estate Capital that 80-90 percent of the money going into his firm’s CMBS loan originations is obtained through such warehouse lines with large banks who are issuing securitizations.

“It’s really about capital efficiency; we borrow that capital from the banks at very cheap rates so we aren’t holding idle cash around the securitization timeline,” he said.

But the practice of originating loans with borrowed money on top of already complex structures like those seen in CMBS is viewed by some as an extra layer of risk.

The move from the OCC is being sparked by an increase in bank loans to the non-bank — or so-called “shadow bank” — lenders, Reuters reported.

“That’s really something that as part of our on-site bank examination process we’re looking to get behind at individual banks: what’s actually happening,” comptroller Thomas Curry said at an event hosted by the news agency. 

The OCC also said it wants lenders to tighten loan terms to property developers in the multifamily market, which it said is becoming frothy in major US cities.

A move to keep a closer watch on the flow of money between the banks and non-banks would come as the latter lenders aim to pull market share away from a stumbling CMBS market and a bank system already struggling with existing and pending regulations.

“It’s hard to see us not taking more market share,” said one executive on a non-bank panel at CREFC’s High Yield & Distressed Realty Assets Summit in Manhattan in March.

The so-called ‘shadow banks’ now make up as much as 15 percent of the total commercial real estate lending sphere, according to data presented at that event. Made up mainly of debt funds, mortgage REITs and other privately funded vehicles, the non-bank lenders largely escape the regulations of their bank counterparts.

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