It's a dated snapshot but still fascinating: large loans ran into trouble at a breakneck pace last year, according to a report released Wednesday by federal regulators.

Criticized syndicated credits more than tripled, to $373.4 billion, as of Dec. 31, while classified loans deemed substandard, doubtful, or loss more than doubled, to $163.1 billion.

The report, an analysis of shared national credits of more than $20 million held by three or more financial institutions, said $2.6 billion of loans were classified as a loss, three times their level in 2006, and doubtful credits more than quadrupled, to $5.5 billion.

The analysis was a stark reminder that while home foreclosures continue to command most of the attention in Washington, the problems facing the banking industry are widespread.

"People have been focused on residential real estate for the current crisis and people have not been focusing attention on analyzing the commercial portfolios of financial institutions," said Gil Schwartz, a former Fed lawyer who now works in private practice. "It doesn't seem to bode well for where the rest of the portfolio will be, since this is just a small part of their total commercial portfolio."

Regulators caution privately that the numbers are not cause for alarm and say that the level of shared national credits often spikes as credit cycles change. The data are also a lagging indicator; the figures are as of yearend, as the credit crisis was beginning to worsen.

Still, there were worrisome signs. Special-mention loans-a leading indicator of credits that are not yet classified but show potential for deteriorating-grew 395%, to $210.4 billion. They now make up 7.5% of the syndicated loan portfolio, up from just 1.9% a year earlier. Overall, criticized loans, which include special-mention loans, made up 13.4% of shared national credits, versus 5% a year earlier.

The regulators said these credits are running into trouble because they "support highly leveraged merger and acquisition transactions originated in 2006 and 2007 that are characterized by weak underwriting standards."

Examiners found an "inordinate volume of syndicated loans with structurally weak underwriting characteristics," according to a joint release from the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Office of Thrift Supervision.

The regulators said the most common examples of poor underwriting were "liberal repayment terms, repayment dependent on refinancing or recapitalization, and nonexistent or weak loan covenants." They also found that "an excessive number of loan agreements did not provide adequate warnings and allow for proactive control over the credit."

Despite those concerns, the regulators said a growing number of the shared national credits wound up in the hands of nonbanks, including securitization pools, hedge funds, insurance companies, and pension funds. These entities held 19.9% of the portfolio, up from 15.9% a year earlier.

As the nonbanks in the syndicated loan market gained more clout, their risk grew. The banking agencies said nonbanks held the largest volume of the most distressed loans, known as classified credits, which doubled, to $70 billion, or 42.9% of the portfolio.

That pales in comparison to the $47.2 billion of classified credits held by domestic banks and $45.9 billion owned by foreign banks doing business in the United States.

The portfolio of shared national credits is now 8,746, accounting for $2.8 trillion of commitments, regulators said. That was up from 7,686 credits, or $2.3 trillion of commitments, a year earlier.

Originally published by American Banker.