Report May Endanger Backstop Bill

Meanwhile, some 60 percent of foreign banks also reported that their rejection rate had not changed substantially.

In addition, the Fed reported that some 80 percent of domestic banks and more than 70 percent of foreign banks indicated little or no change in demand for loans to finance high profile properties because potential borrowers were unable to acquire affordable terrorism insurance.

Generally, the Fed reported, about 75 percent of domestic banks said they require terrorism insurance on less than 10 percent of loans financing high profile properties.

Many banks, the Fed said, note that their standard commercial real estate loan contracts, especially for loans of less than $10 million, generally do not require terrorism insurance.

The Fed said that six domestic and six foreign banks reported that they require terrorism insurance on more than 90 percent of loans for high profile properties. The six domestic banks, the Fed said, account for about 8 percent of all commercial real estate loans in the U.S., while the six foreign banks account for less than 2 percent.

The Fed's survey also reported that 70 percent of domestic banks have less than 5 percent of the dollar volume of their commercial real estate loans in high profile properties.

In the survey, banks were asked what they would do if an existing borrower were unable to acquire adequate terrorism insurance on a property for which insurance is required.

According to the Fed, domestic banks said their most likely response would be to ask for additional collateral and to modify the existing loan covenants to allow for partial coverage.

Foreign banks, by contrast, said they would most likely increase fees or interest rates associated with the loan. Four foreign banks said they would either call the loan or refuse to roll it over when it comes due.