The Asbury Park Press reports from New Jersey. "When Kara Homes filed for bankruptcy this month, Amboy National Bank of Old Bridge was listed as the largest creditor with $58.2 million in loans. When local real estate mogul Solomon Dwek's $400 million empire was frozen by a judge following charges of bank fraud, Amboy was again the largest creditor, for $49.7 million."

"Just as Amboy has been surprised by the loans gone bad, a real estate market in decline could spell financial trouble for other local banks and thrifts that have lent heavily for housing developments and commercial real estate, bank analysts and federal regulators say."

"'It's a disaster waiting to happen out there,' said Gerard Cassidy, bank analyst for RBC Capital Markets, an international firm based in Toronto. 'We've seen this movie before, and it doesn't end very well.'"

"Regulators are proposing that banks do not lend more than three times their capital for all commercial real estate combined. That means if the bank has $100 million in capital, it should be careful about making more than $300 million in loans to businesses or developers, or it could face regulatory scrutiny."

"In New Jersey, 47 percent of the 95 national- and state-chartered banks are already over the proposed guideline, an Asbury Park Press analysis of federal data showed."

"'Are we alarmed or very concerned? The short answer is no,' said Steve Fritts, an associate director at the Federal Deposit Insurance Corp, which regulates banks and insures depositors against losses. 'But every bank is different. In some (specific) cases, we might be concerned.'"

"Vincent D'Alessandro, VP of Shore Community Bank in Toms River, said the real estate market downturn has put more pressure on banks to beat last year's earnings. 'I know there are loan officers out there making loans because they have budgets to meet and job security issues,' D'Alessandro said. 'Banks get focused on hitting numbers, making sure their loan officers are hitting their numbers — and you set yourself up for making bad loans.'"

"Shore Community has $96.8 million in real estate loans to developers and businesses, about five times the bank's capital. D'Alessandro said the bank is confident it has made wise loan decisions, but nonetheless it is tightening requirements for new borrowers. Unfortunately, D'Alessandro said, that hurts little guys."

"'It's all about a credit crunch right now,' D'Alessandro said. 'You hate to say that, but banks like us will have to tighten the screws; the guy who wants to develop his house, or the roofer that needs some funding, we'll be looking at that much more carefully. Some people may have to borrow for their living expenses, but those are the people you have to cut off.'"

"New Jersey banks are not alone in facing more risk in the real estate slowdown. Banks in 10 other states have an even greater investment in commercial real estate, the Press' analysis showed. In Arizona and Washington, more than seven of every 10 banks have more than three times their capital wrapped up in commercial real estate loans."

"Bank regulators have a maxim: 'Bad decisions are made in good times.' So regulators and analysts think there is a greater chance that bad lending decisions were made in the go-go real estate market of this decade."

"'Rapid growth can mask problems,' said Michael E. Collins, VP of the Federal Reserve Bank of Philadelphia. 'Whenever there is rapid growth, heightened competition can cause people to go out on the risk curve more than they would normally.'"

"Amboy National Bank held $1 billion in construction and land development loans as of June, the latest figures available. That's nearly quadruple the amount from five years ago. Amboy now must deal with $108 million in bad loans stemming from Dwek's downfall and the Kara Homes bankruptcy filing."

"Bank President George E. Scharpf of Colts Neck has not responded to telephone and written messages asking for comment."

"Bank analyst Cassidy said the court-ordered sale of Solomon Dwek's $400 million real estate empire is a prime example of risk-taking gone bad for local banks. He said that if the economy falls into a recession, then 'credit losses could skyrocket.'"

"'Dwek is a canary in the coal mine for a developer with multiple projects in the air, and there's a domino effect,' Cassidy said. 'If one starts to have problems, there are repercussions in the market.'"