Bank regulators blamed their own staff as well as bank management for the recent failures of Silicon Valley Bank and Signature Bank — incidents that fueled concerns about commercial property lending — and recommended the approval of tougher rules.

The Federal Reserve Bank said in a report its own regulators and managers at Silicon Valley were at fault for not paying enough attention to signs of risk. The Federal Deposit Insurance Corp. in a separate analysis took a similar stance with Signature, blaming itself and bank managers who were slow to respond to red flags.

The Silicon Valley and Signature failures have investors concerned that more banks could collapse. First Republic Bank’s shares sunk about 50% to a record low of $3.82 per share on Friday before trading was halted. The drop came after a media report that regulators may close the San Francisco-based bank.

For commercial real estate investors, brokers and tenants, the bank failures have heightened worries that it will be more difficult to secure bank loans for commercial properties. Regional and community banks in the U.S. account for about 68% of commercial real estate loans, according to Bank of America.

“Lower office space demand stemming from accelerated flexible work arrangements in the pandemic” could lead to declines in property valuations and the availability of capital from banks, Fitch Ratings said in an April 27 research report.

The Federal Reserve cast a wide net to place blame for Silicon Valley’s failure. It said that its own regulators moved too slowly to require changes at the bank despite its high level of uninsured deposits.

The Federal Reserve’s examiners also did not place enough importance on reviewing the bank’s interest-rate liquidity risks, according to the findings.

Inadequate Oversight Found

Its report also said that when examiners discover problems, those banks may be required to raise more capital as a stop-gap measure before wider changes in the bank’s balance sheet can be implemented.

The Fed plans to seek public comment later this year on a list of proposed changes to make bank regulations more stringent.

The FDIC said in a review of its own performance that it did not have enough staff to adequately review Signature’s financial records. The FDIC also said Signature management did not move quickly after the regulator highlighted warning signs with the bank’s liquidity.

Additionally, Signature management did not have a full understanding of the complexities of the cryptocurrency field, the FDIC said. Deposits from crypto firms made up about 27% of the bank’s total deposits in 2021. The collapse of some crypto firms contributed to the run on Signature’s deposits, leading to its failure.

The Federal Reserve was the primary federal regulator of both Silicon Valley and its holding company, SVB Financial. The two entities were also subject to some regulation by the FDIC and California state banking examiners.

The FDIC and New York state banking regulators had oversight of Signature Bank, which did not have a holding company.

Two Banks Say Portfolios Solid

Separately, two banks in the greater New York and Long Island areas reported on Friday that their commercial real estate loan portfolios have not shown signs of deterioration this year.

New York Community Bancorp, in its first-quarter earnings report, said that it had no delinquent loans in its office portfolio as of March 31. The company’s $3.4 billion in office loans is about 4.1% of its $83.3 billion overall loan portfolio.

“Our office exposure remains very manageable,” CEO Thomas Cangemi said in a Friday conference call.

New York Community’s $38 billion portfolio of multifamily loans on rent-regulated buildings in New York City had also had no delinquencies at the end of the first quarter, Cangemi said.

Dime Community Bancshares’ commercial property loan portfolio has also shown little sign of stress, CEO Kevin O’Connor said in a Friday call. None of the loans in its $225 million portfolio of office loans in Manhattan are delinquent, he said.

“We’re not real concerned about that,” he said.

The Hauppauge, New York-based company also has no delinquencies in its $4.1 billion book of multifamily loans, which are primarily for borrowers in Brooklyn, Queens and Long Island.

“We have not had to restructure any of those loans,” O’Connor said.