Are the 300 Percent CRE Concentration Guidelines Hard Limits?
No. The 300 percent figure is a supervisory indicator that helps identify banks with possible CRE concentration risk, and it sets no lending cap for any institution. It works as a pair: CRE at 300 percent of capital or more, plus CRE portfolio growth of 50 percent or more over the prior three years. A bank that meets both draws closer supervisory attention to its risk management and capital, and no loan is automatically barred.
The two tests inside the 300 percent screen
The screen has two parts, and both have to be met. CRE exposure must stand at 300 percent of capital or more, and the CRE portfolio must have grown 50 percent or more over the prior three years.
Supervisors use the pair as a preliminary step to identify institutions that may have CRE concentration risk. The criteria are high-level indicators of potential exposure and place no limit on lending activity.
No concentration limit applies to all institutions. A ratio above 300 percent is therefore no breach of anything on its own, and a ratio below it carries no certificate of safety.
The measurement sits at the institution level. It says nothing about whether any single loan is sound.
“The Agencies will use the criteria as a preliminary step to identify institutions that may have CRE concentration risk.”
What follows when a bank meets both criteria
Meeting both criteria starts a closer look at how the bank manages its CRE concentration. The framework describes sound risk management practices and capital levels that support safe and sound CRE lending, and it encourages stronger risk management to manage and control concentration risk.
Supervisors have also said they could require more capital or lending curbs where CRE exposures create risk. Any such outcome is reached bank by bank after review.
The practical cost of a high ratio paired with fast growth is therefore supervisory emphasis on how the concentration is managed and capitalized. The screen sets no ceiling that a loan committee runs into on a given morning.
Worked example: a bank at 350 percent of capital under two growth paths
Take a hypothetical bank with total capital of $100 million and CRE exposure of $350 million. The ratio is $350 million divided by $100 million, multiplied by 100, or 350 percent. That is above the 300 percent mark in both cases below, so the first test is met either way. CRE at exactly 300 percent of capital would be $300 million, so this bank sits $50 million above that point.
Base case: the CRE portfolio stood at $280 million three years earlier. Growth is ($350 million minus $280 million) divided by $280 million, multiplied by 100, or 25 percent. That is below the 50 percent growth test, so the paired screen is not met.
Stressed case: same capital, same $350 million of CRE today, but the portfolio stood at $200 million three years earlier. Growth is ($350 million minus $200 million) divided by $200 million, multiplied by 100, or 75 percent. Both tests are met, and the bank becomes an institution that may have CRE concentration risk.
The two cases differ only in the starting balance. Capital and ending exposure match in both, so the growth path alone separates the bank that passes the screen from the bank that trips it.
Now hold the stressed case fixed and add capital: the bank raises total capital to $120 million. The ratio becomes $350 million divided by $120 million, multiplied by 100, or 291.67 percent. That is below 300 percent, so the first test is no longer met even though not one loan was sold. The growth figure stays at 75 percent, since it depends only on the two CRE balances.
Why the ratio moves without a single new loan
The numerator is the CRE balance and the denominator is total capital, so either side can move the ratio. Losses that reduce capital push the ratio up with CRE balances unchanged. Capital added to the bank pulls it down, as the example shows.
Growth is measured across the full three year window, ending balance against starting balance. As the window rolls forward, the starting balance is replaced by a later one, so measured growth shifts even when no loan is made or sold.
Both tests are snapshots against a moving base. A bank watching only its current balance can pass or fail the screen because of changes in capital or in the window.
Errors in reading the 300 percent screen
Treating 300 percent as a lending cap skips the definition. The indicator identifies institutions for review and places no limit on lending activity, and no limit applies to all institutions.
Testing the ratio alone gives the wrong answer for a bank like the base case above. At 350 percent of capital it is above the first threshold, yet 25 percent growth leaves the paired screen unmet.
Testing growth alone fails the same way. A portfolio that grew 75 percent is not flagged if capital is large enough to keep CRE below 300 percent of it.
Reading a bank that passes the screen as free of concentration risk overstates what the screen does. It is a preliminary step to identify institutions that may have risk, so a pass means only that no flag was raised.
Reading a flag as a prohibition confuses the screen with its possible consequence. Supervisors could require more capital or lending curbs, but that follows a bank by bank review and does not arrive with the ratio.
Questions for testing a bank’s position against the screen
Is CRE exposure at 300 percent of total capital or more? This is the first test, and it uses total capital as the denominator.
Did the CRE portfolio grow by 50 percent or more over the prior three years? The second test compares ending and starting balances for the same portfolio definition.
Are both tests met at the same time? Only the pair places an institution within the preliminary screen.
How much of a ratio change comes from capital and how much from CRE balances? A rise in the ratio can come from losses reducing capital while loan balances stay put.
Which starting balance anchors the growth figure? A rolling window replaces the starting balance as time passes, which changes measured growth.
What risk management practices and capital support sit behind the concentration? The framework centers on these as the basis of safe and sound CRE lending.
Is the number being read as a limit on lending or as a supervisory indicator? The indicator sets no limit that applies to all institutions.