Banks with the biggest balance sheets are carrying the highest commercial real estate loan delinquencies—but that doesn't necessarily spell trouble for the financial system.
That's the key takeaway from a new analysis of Q4 2025 Call Report data by Trepp Chief Economist Rachel Szymanski, which examined 4,341 banks and found a sharp divide between delinquency rates and actual risk exposure across different bank sizes.
Concerns about CRE stress have lingered since a wave of regional bank failures in 2023, compounded by stubbornly high office vacancies and widespread "extend-and-pretend" loan strategies. Against that backdrop, Szymanski's data shows that delinquency rates rise steadily with bank size, culminating in a notable spike among the largest institutions.
Median CRE loan delinquency rates were effectively negligible at banks with less than $100 million in assets. They climbed to 0.13% for banks with $100 million to $300 million, then to 0.49% for those between $300 million and $800 million. The rate edged up to 0.54% for banks with $800 million to $2 billion and 0.62% for those with $2 billion to $6 billion, before dipping slightly to 0.60% for banks with $6 billion to $16 billion.
From there, the upward trend resumed, reaching 0.70% for banks with $16 billion to $40 billion in assets and 0.77% for those between $40 billion and $100 billion. The most dramatic jump came at the top end, with financial institutions with more than $100 billion in assets posting a median delinquency rate of 1.90%—nearly two-and-a-half times that of the tier below.
At first glance, that surge appears alarming. But Szymanski cautions that delinquency rates alone don't tell the full story.
"This sounds concerning until you layer in concentration," she wrote.
When measured as a share of total assets, CRE concentration levels are far more evenly distributed—and notably lower at the largest banks. Median CRE concentration stood at 0.04% for banks with assets under $100 million, rising gradually to 0.36% for banks with assets between $2 billion and $6 billion. It then tapered off, falling to 0.26% for banks between $40 billion and $100 billion and dropping sharply to just 0.08% for institutions with more than $100 billion.
That contrast helps explain why elevated delinquencies at large banks may not translate into systemic risk. According to Szymanski, the issue is less about broad-based CRE weakness and more about a specific pocket of exposure. Recent research points to large, pre-pandemic office loans as the primary driver of stress at the biggest institutions, suggesting a legacy office problem rather than a sector-wide credit deterioration.
In fact, the institutions showing the highest delinquency rates are also among the most resilient.
"Although losses still exist and will continue to materialize as extensions expire, the path from office distress to broader financial instability likely requires a wider chain of adverse events," Szymanski wrote.
Still, pressure is building beyond the largest banks. Delinquency rates continue to rise across smaller and mid-sized institutions, raising questions about how sustained stress could influence new CRE lending, including loan pricing and underwriting standards.
Szymanski expects legacy office exposure to remain a "second-order factor" for the sector and points to broader risks that could weigh more heavily on the market, including opaque private credit exposures and geopolitical uncertainty that may keep monetary policy tighter for longer than anticipated.
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