The Federal Reserve Bank of Minneapolis says about a third of banks in Minnesota are struggling, burdened by bad business loans.
The Minneapolis Fed made the assertion in a quarterly report on regional banking conditions. The report also states lending by the nearly 400 banks chartered in the state is down overall.
Ron Feldman, a senior vice president at the Minneapolis Fed, said lending by Minnesota banks is down about 5 percent from a year ago.
"There's just less demand from borrowers," he said. "Banks have higher standard than they had before. So, fewer people are going to qualify. And the banks that are in worse shape are going to spend most of their attention trying to improve their condition, as opposed to generating new loans."
Feldman said the struggling banks will get extra scrutiny from regulators. He said the banks are generally burdened by bad commercial real estate loans.
"There's a lot of loans that were made and they're not performing," Feldman said. "Some banks are finding themselves having to seize property. And with a big glut of property, it's hard to sell them."
Feldman said the pace of recovery for banks was pretty much flat in the first three months of this year, leaving banks in about the same shape they were in at the end of last year.
The Fed's report covers only banks chartered in the ninth banking district, which excludes Wells Fargo and US Bank. But Feldman expects lending would be down, even if those banks were counted.