Managing asset concentrations demands a balanced approach

Description

Abstract: Asset concentrations increase a bank’s risk by exposing it to significant potential losses. But in an effort to serve their communities, many community banks end up with high concentrations in local industries, such as agriculture, forestry or manufacturing. This article suggests some best practices for banks to follow to balance risk vs. reward and mitigate potential risks, including reviewing credit risk management policies and evaluating capital and reserves. A sidebar explains what examiners look for when assessing whether banks have high commercial real estate concentrations.