I was 29 years old when I watched one of the most prominent banks in New England become a case study in institutional failure.
The image that has stayed with me for more than three decades is not a balance sheet, a regulatory order, or a troubled-loan report. It is a canvas banner.
On a cold January morning in 1991, I stepped out of the State Street subway station in downtown Boston and looked up at the Bank of New England building. Someone had placed the word “New” over the bank’s familiar name.
The sign now read:
New Bank of New England.
It was a temporary solution for a bridge bank created after federal regulators took control. Yet, to those of us who worked there, it represented something much larger. A respected institution had failed. Careers had changed overnight. Loans that once appeared manageable had become evidence of deeper structural problems.
The failure did not result from one bad development, one imprudent borrower, or one difficult market.
It reflected a broader breakdown in how growth, incentives, underwriting, portfolio oversight, and governance worked together.
That experience shaped how I later approached commercial real estate lending, workouts, Federal Reserve examinations, enterprise CRE risk, and portfolio growth. It also informs how I think about bank advisory work today.
The central lesson is simple:
CRE risk rarely becomes institutional risk all at once. It accumulates quietly until the organization can no longer avoid what the portfolio has been saying.
I Joined a Bank That Appeared Unstoppable
I moved from Atlanta to Boston in 1988 after completing my MBA at Clark Atlanta University.
I had earned a position in the Bank of New England’s Management Credit Training Program. The class included graduates from Harvard, Boston College, Boston University, Wellesley, Babson, and other well-regarded institutions. I wanted to see how my preparation from Morehouse College and Clark Atlanta would compare.
The program was rigorous. We worked through corporate-finance concepts, credit analysis, case studies, examinations, and live transactions. After the initial classroom phase, we moved into two intensive credit-analysis rotations. Each required us to complete dozens of detailed analyses before joining a lending group.
I ultimately ranked among the strongest performers in the class and chose commercial real estate.
That decision put me close to the engine of the bank’s expansion.
I worked on construction loans, mini-permanent financings, retail redevelopment, multifamily transactions, and other income-producing real estate. One assignment involved a high-rise multifamily project in Atlanta, which seemed remarkable at the time. I had moved north to begin my banking career, yet I was helping finance a major project in my hometown.
The bank felt ambitious, sophisticated, and important.
From the outside, it appeared to be everything a young lender could want.
Growth Became More Than a Strategy
Following its merger with Connecticut Bank & Trust, the Bank of New England expanded rapidly across the region. It acquired institutions, added branches, entered new markets, and competed aggressively for commercial relationships.
Commercial real estate played a central role.
The message inside the organization was clear: real estate was essential to growth. We were competing with the Bank of Boston, Fleet, Shawmut, BayBanks, and other strong regional institutions for attractive borrowers and transactions.
There was urgency in the market and inside the bank.
That urgency was not inherently wrong. Banks are supposed to compete. Lenders are supposed to build relationships, identify opportunities, and generate sound loan growth.
The problem begins when growth becomes the organizing principle around which every other function must adapt.
Credit standards may still exist. Approval committees may still meet. Appraisals may still be ordered. Risk reports may still be distributed.
However, the operating culture can begin to change beneath those formal processes.
Exceptions become easier to justify.
Optimistic assumptions receive less challenge.
Production success carries more organizational influence.
Portfolio concerns appear less urgent while earnings remain strong.
Acquisition due diligence becomes focused on completing the transaction instead of testing the quality of the assets being acquired.
This is one of the most important distinctions in bank risk management:
Rapid growth is not dangerous merely because it is rapid. It becomes dangerous when the control environment cannot keep pace.
The Files Told a Different Story
Near the end of our credit-analysis training, a small group of us received a special assignment. We were sent north to review recently originated loans at acquired institutions in New Hampshire and Vermont.
The assignment changed how I viewed the bank.
As we reviewed CRE files, we encountered transactions with leverage exceeding what I considered supportable. Some relied on outdated or missing appraisals. Others involved borrowers whose cash flow did not appear sufficient to service the debt.
Several credits seemed unlikely to perform as structured.
These were not simply imperfect files. Every bank has documentation gaps, judgment calls, and loans that later underperform.
What concerned us was the pattern.
High leverage, weak cash flow, questionable valuation support, and inconsistent underwriting appeared together. In some cases, the transactions seemed designed to strengthen the acquired institution’s balance sheet or growth profile before acquisition rather than to create durable repayment capacity.
Back in Boston, we compared notes.
The question was unavoidable:
How had these loans passed through the credit process?
The due-diligence exercise revealed a gap between the bank’s expansion strategy and the underwriting discipline required to support it. It also showed how acquired risk could become enterprise risk long before senior management fully understood the implications.
That was an early turning point for me.
Until then, I had viewed risk primarily at the transaction level. Was the borrower strong? Did the project make sense? Was the appraisal credible? Could the cash flow support the debt?
The acquired portfolios showed me that risk must also be evaluated as a system.
Were standards consistent across business units?
Did acquired institutions share the same credit culture?
Were exceptions visible in aggregate?
Did management understand which assumptions were common across hundreds of loans?
A single transaction can be repaired, restructured, or written down. A system producing the same weaknesses repeatedly creates a different problem.
Credit Weakness Becomes Institutional Risk Quietly
Bank failures are often explained in hindsight as if the outcome were obvious.
Usually, it is not.
Institutional risk tends to accumulate through a series of decisions that can each be defended at the time.
An appraisal is accepted because the market is rising.
A high-leverage transaction is approved because the sponsor has experience.
A maturity is extended because conditions are expected to improve.
A risk-rating downgrade is delayed because the borrower remains current.
A concentration grows because every individual deal appears acceptable.
A market decline is treated as temporary.
None of those actions necessarily causes a failure by itself.
The danger comes from accumulation.
By the time the Bank of New England’s problems became undeniable, the weakness was no longer confined to a few acquired portfolios. The regional CRE market was deteriorating, collateral values were falling, and credit problems were emerging across the institution.
According to the source account, the bank moved from reporting a $74 million profit to a $1.2 billion loss within roughly a year, with troubled CRE exposure playing a major role. In January 1991, regulators took control of three banking subsidiaries and established bridge institutions.
From the inside, the speed of the collapse felt extraordinary.
From a risk perspective, however, the deterioration had been building for years.
The market exposed the weaknesses. It did not create all of them.
Workouts Changed How I Thought About Origination
After the failure, the organization was divided between performing assets and troubled assets.
Some colleagues moved into the bad bank, known as Real Estate Collections, or RECOLL. I remained on the performing side, managing loans that still had a reasonable path forward while also working through credits under pressure.
That experience gave me an early education in loan workout.
It also changed how I thought about underwriting.
A workout is not separate from origination. It is the original underwriting revealed under stress.
Every assumption eventually faces reality.
The borrower’s projected liquidity becomes actual liquidity.
The guarantor’s stated support becomes measurable capacity and willingness.
The appraisal becomes an uncertain recovery estimate.
The loan documents become either a source of leverage or a source of frustration.
The operating plan becomes actual property performance.
During a strong market, weaknesses in structure can remain hidden. Refinancing is available. Values rise. Sponsors contribute capital because they expect an attractive outcome.
Once conditions deteriorate, the bank discovers which protections are real.
That is why risk management must begin before closing.
It begins with verified cash flow, realistic valuation, defensible leverage, strong documentation, appropriate covenants, clear reporting requirements, and an honest assessment of sponsor capacity.
By the time a loan reaches special assets, many of the bank’s most important options have already been determined.
Six Lessons That Still Matter
The Bank of New England experience stayed with me through later roles as a CRE lender, workout officer, Federal Reserve examiner, and enterprise CRE credit-risk executive.
Six lessons remain especially relevant.
1. Growth requires operating guardrails
Growth is a legitimate objective. The answer is not to avoid CRE lending or retreat from opportunity.
However, production must grow within a control system that can support it.
That includes experienced staff, clear underwriting standards, independent credit challenge, reliable risk ratings, strong appraisal review, concentration limits, and decision-useful reporting.
When production grows faster than those capabilities, the institution becomes increasingly dependent on favorable market conditions.
2. Due diligence must challenge the strategy
Due diligence should not exist to validate a transaction that leadership has already decided to complete.
Its purpose is to identify what could make the strategy fail.
In acquisitions, that means looking beneath aggregate balances and reported yields. Loan-level underwriting quality, appraisal credibility, exceptions, sponsor capacity, maturity structure, and local credit culture matter.
A portfolio may appear attractive because it has grown rapidly. The real question is whether the growth reflects durable repayment capacity or risk that has not yet been recognized.
3. Culture determines whether risk information travels upward
Policies cannot protect an institution if employees believe that raising concerns will damage their standing.
Healthy credit cultures make room for constructive disagreement.
A lender should be able to question an appraisal.
A portfolio manager should be able to recommend a downgrade.
A credit officer should be able to reject a transaction supported by a powerful producer.
A risk executive should be able to tell senior management that the growth plan has exceeded the bank’s capacity.
The quality of a bank’s risk culture becomes visible when the information is unwelcome.
4. Concentrations must be measured by common risk drivers
Portfolio concentrations are not always obvious from property-type reports.
Loans that appear diversified may depend on the same economic assumptions.
They may share exposure to:
- the same geography;
- the same sponsors;
- speculative construction;
- rising rents;
- declining capitalization rates;
- short-term refinancing;
- a narrow tenant base;
- or continued market liquidity.
True concentration analysis asks what could cause many loans to weaken at the same time.
That question is more useful than simply counting property categories.
5. Early recognition preserves options
Banks do not improve credit quality by delaying the recognition of deterioration.
They reduce their options.
An early downgrade can trigger stronger monitoring, updated financial information, revised valuations, borrower discussions, covenant enforcement, reserve analysis, and action plans.
Delayed recognition often gives the appearance of stability while underlying repayment capacity continues to weaken.
Problem recognition is not merely a technical credit function.
It is a leadership discipline.
6. Reputation and judgment outlast institutions
The collapse was painful, but the experience became foundational to my career.
Relationships formed during the crisis later created opportunities I could not have predicted. The judgment developed through difficult loans informed my work at the Federal Reserve and later at SunTrust.
Institutions change. Titles change. Markets change.
Professional integrity travels with you.
From Boston to the Federal Reserve and Enterprise CRE Risk
My experience at the Bank of New England influenced every major stage that followed.
At the Federal Reserve, I evaluated institutions through both an asset-quality and balance-sheet-risk lens. I saw how CRE concentration, interest-rate risk, liquidity, funding, stress testing, and governance interact.
Later, at SunTrust, I approached enterprise CRE risk with the conviction that growth and discipline should work in tandem.
The objective was never to stop lending.
It was to create stronger visibility around where the bank was growing, which assumptions supported that growth, where risk was accumulating, and how management should respond before problems became unmanageable.
That meant strengthening policy, portfolio monitoring, risk-rating discipline, appraisal oversight, stress testing, and governance.
It also meant recognizing an important truth:
The business and risk functions should not operate as opposing forces. They should operate as one system designed to produce sound growth.
That remains central to LakeRock Capital’s work today.
Our approach to Commercial Real Estate Credit Risk Advisory for Banks is grounded in the idea that clearer risk visibility supports better decisions. Portfolio review, underwriting discipline, documentation quality, refinance exposure, concentration analysis, and governance should help leadership decide where the bank can lend confidently—and where stronger guardrails are required.
Questions Bank Leadership Should Ask Now
The market is different from New England in the late 1980s. The core governance questions are not.
Bank leaders should ask:
- Are CRE concentrations being measured by their actual common risk drivers?
- Have underwriting exceptions become routine?
- Are appraisals being challenged or merely processed?
- Do risk grades reflect current repayment capacity?
- Is borrower and guarantor liquidity verified regularly?
- Are extensions solving problems or postponing recognition?
- Can credit leaders challenge production without organizational penalty?
- Has portfolio surveillance kept pace with growth?
- Does the board receive actionable information or only high-level summaries?
- Would management recognize deterioration early enough to preserve options?
Those questions are not evidence of an anti-growth culture.
They are evidence of responsible leadership.
Closing View
Institutions rarely fail because no one saw any warning signs.
More often, the information existed in separate places.
A lender saw weakness in a borrower.
An appraiser saw pressure in valuation.
A portfolio manager saw rising exceptions.
A credit officer saw concentration.
A regulator saw inconsistent controls.
The failure occurred because the organization did not connect the information, elevate it, or act on it soon enough.
That is what the Bank of New England taught me about CRE risk.
The market cycle matters. Interest rates matter. Values matter. Liquidity matters.
However, governance determines whether an institution recognizes those changes early enough to respond.
Strong CRE risk management is not designed to prevent growth.
It is designed to ensure that growth remains visible, supportable, and governable before market pressure reveals what the institution failed to see.
Explore additional insights into underwriting, governance, and CRE decision-making inside the Commercial Real Estate Credit Room™.
