WASHINGTON, DC—The FDIC has published the final rules for the stress testing required by the Dodd-Frank Act. For institutions with assets greater than $50 billion, the law goes into force this year. Institutions with assets between $10 billion and $50 billion can wait until October 2013. The FDIC board also approved a final rule that amends the definitions used to identify concentrations in higher-risk assets to better reflect the risk posed to institutions and the FDIC.

Lending by commercial banks to projects has been subdued since the crash, although it has been improving. The most recent Senior Loan Officer Opinion Survey on Bank Lending Practices by the Federal Reserve Bank noted, "A modest fraction of domestic banks, on balance, reported having eased standards on CRE loans over the past three months, while a sizable fraction, on net, continued to indicate having experienced stronger demand for loans."

Despite—or indeed, because of—the lackluster bank lending environment, the stress test requirements will be of key interest to the commercial real estate industry. Conduit lending is barely emerging, leaving many borrowers to rely on banks' balance sheet lending programs. That lifeline, though, may be scaled back with these tests.

"The new rules will force a number of regional and global banks to reconsider how they offer balance sheet fundings—as in fewer will do them," says Lawrence J. Selevan, CEO of Chesterfield Faring Ltd. Instead, he predicts, more banks will try to tap the conduit market or agency securitizations via separate subsidiaries. "The largest impact will be on small community banks that will find it more difficult to make small commercial loans." These, he says, will likely be transferred to the government's SBA lending programs.

Although institutions with less than $10 billion in assets are not yet required to submit to stress testing, Trepp's Matt Anderson says that the regulatory regime is headed in that direction. Meanwhile, the New York City-based firm subjected smaller lenders to its own version of the stress test, and found that one in eight US banks would fail such a test of capital adequacy.

Yet although larger lenders have generally done a better job of cleaning up bad CRE debt, it's misleading to paint smaller banks with a broad brush, says Anderson, Trepp's lead bank analyst. "You certainly have a mixture of smaller banks with very clean balance sheets and low levels of risk and others at the opposite end of the spectrum," he says. "There's greater variation among the smaller banks than among the larger ones."