UPDATE 1-NYCB stock rout prompts US bank regulators to conduct health checks

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By Nupur Anand, Pete Schroeder and Matt Tracy

NEW YORK/WASHINGTON, Feb 20 (Reuters) - U.S. banking regulators have been asking regional lenders whether they faced any fallout from the problems at New York Community Bancorp , several sources said, in a sign that worries about the health of the sector persist.

Two banking executives, a legal source and an industry source, said banks had calls with regulators. Those included the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp, as well as state banking bodies, the day of and shortly after NYCB posted disappointing earnings and cut its dividend on Jan. 31, sources said.

The conversations included regulators inquiring about liquidity at the banks and whether they had seen any impact on deposit flows or worries from customers, the bankers said.

The executives said they had not seen any unusual activity, with one describing it as an exercise to confirm what regulators already knew.

The conversations are an indication of how concerned regulators remain about smaller banks, after the failure of Silicon Valley Bank and other mid-size banks last year sparked fears about the health of regional lenders.

NYCB posted a surprise loss in late January and a $552 million provision for credit losses, with the major share of the provisions allocated to its commercial real estate (CRE) portfolio.

Small banks account for nearly 70% of all CRE loans outstanding, according to research from Apollo. Pressure on CRE loans have increased with vacancies in several office buildings continuing since the pandemic.

Valley National Bancorp, Axos Bank, WaFd and Bank OZK are some of the other lenders that have a high CRE concentration, according to real estate data provider Trepp.

WaFd Bank said its CRE concentration level was "clearly something the regulators focused on in our recent merger application of Luther Burbank Savings," adding that it received approval of the acquisition on Jan. 30.

"Valley has been a relationship commercial real estate lender that has been consistently regulated by the OCC for many decades," Ira Robbins, CEO of Valley National Bank, said in a statement to Reuters. "We remain comfortable with our diverse and granular commercial real estate portfolio. As always, we value and benefit from regular dialogue with our regulators."

The other banks did not respond to email requests seeking comment. Spokespeople for the FDIC and OCC declined to comment.

Some of the regulatory conversations included questioning the banks about their liquidity and capital positions and ruling out any likely imminent areas of stress, said the legal source who works with regional banks.

The source described those conversations as triggered after NYCB's earnings, adding that the heightened monitoring includes conversations around every area of operation to ensure that banks are resilient.

NYCB stock has lost over 50% of its value since January and was down by over 3% in trade on Tuesday. (Reporting by Nupur Anand and Paritosh Bansal in New York, Matt Tracy and Pete Schroeder in Washington; Editing by Megan Davies and Leslie Adler)