Commentary Today

              These commentaries are more expanded issues facing the country today 

Where is banking going?

The savings and loan crisis of the 1980s and 1990s saw the failure of more than 700 savings and loan associations.  There is no need to rehash the many short-comings of the financial industry but it did give rise to Resolution Trust Corporation and a slew of new regulations.


The Great Recession of 2008-09 saw what many people believed was a enduring response to the disaster by the federal government and many financial institutions.  Through TARP, TALF, HAMP, and a range of other initiatives, financial markets and many institutions were flooded with liquidity in a variety of ways, providing time for markets to normalize and values to stabilize, which they did.  There was in many instances a meet-me-halfway approach with lenders and borrowers creating sensible solutions to troubled loans in a very difficult environment.  Other instances there was simply no hope.  The property was lost.  This is not to say that many banks failed.  They did.  There were almost 500 bank failures between 2008 and 2013 costing the FDIC $73-billion.  For the most part it was a liquidity issue.


COVID-19 reminds us that each downturn is different in important aspects.  Under the current and continuing circumstances, the pandemic impacts almost all business and financial communities in an extraordinary way.  There is wide spread stress on existing loans and there is a potential for this to get a lot worse.  The first response (maybe the only response available to lending institutions) has been measured and to date tolerant, recognizing that every sector of the economy is under the same pandemic pressure.


As for the commercial real estate sector today, the response by financial institutions to the flood of borrower requests for accommodations has dimensions that fit with today’s unique (maybe never before experienced even in the 1930s) circumstances.  We understand that real estate is in itself a unique animal (every property is different) requiring an approach and a solution that fits the specifics of each individual asset.  The hotel industry is very different from the office sector, etc.  It is somewhat safe to assume that lending community has been measured and temperate in their initial response.  There is a favorably disposition by the banks to a “short-term forbearance” that will bridge to a time when the severity and public policy response to the pandemic offers some clarity.  This maybe every-ones Waterloo.  We don’t know that will occur in three- to six-months, and the country is so divided that there is little tolerance to maintain the necessary requirements to keep people safe.  Or in other words a return to a normality that is financially tolerable.  Without some type of return to normality there will be a pain.


JOD  May 27, 2020