Commercial Banking:

Lending to Troubled Sectors

GGD-88-126BR: Published: Sep 26, 1988. Publicly Released: Sep 26, 1988.

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Pursuant to a congressional request, GAO examined the extent to which commercial banks made loans to five troubled economic sectors to determine the significance of the banks' exposures to loan default or repayment problem risks.

GAO found that, in 1987: (1) 8,550 of 13,700 federally insured banks had one significant exposure to a troubled economic sector, usually in agriculture or real estate, and held $99.65 billion in significantly exposed loans; (2) 988 banks had two significant exposures, holding $54.90 billion in loans, typically in agriculture and real estate; (3) 60 banks held $83.16 billion in significantly exposed loans, with 10 of these banks holding $69.90 billion for loans made in the troubled energy, developing country, and real estate sectors; and (4) six banks held $11.45 billion in significantly exposed loans in the real estate, energy, developing countries, and securities sectors. GAO also found that measures of the extent of banks' financial risk increased with the number of sectoral exposures within banking organizations.

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