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FDIC Federal Register Citations

MCHENRY SAVINGS BANK
 

October 28, 2003

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, N.W.
Washington, D.C. 20429
Attention: Comments

Dear Mr. Feldman,

As you are aware, the proposal for the Basel II Accord (internal model for determining capital requirements) has a comment period that ends on November 3, 2003.

It is critical that community banks are not forced to adopt the Basel II Accord as proposed. Community banks must be allowed to `opt in' to this new proposal. The New Accord is trying to more closely link minimum capital requirements with an institution's risk profile. Community banks must retain the option to leverage their capital, regardless of the complexity of the calculations to prove their risk-worthiness. Small institutions will be at a competitive disadvantage to the extent that they cannot deploy capital as efficiently as larger, more sophisticated institutions.

Enclosed is a revised 'risk-based capital formula' being proposed by McHenry Savings Bank. This formula takes into consideration loan-to-value ratios and collateral values, most of which can be obtained through third party appraisal services or published listings such as Black Book. This proposed formula is provided to open up dialogue on potential revisions. I believe that it more accurately reflects the true risk of assets on our balance sheets.

If capital requirements are changed and new options are developed, institutions should be allowed to choose between developing their own internal risk rating systems, or maintaining a modified risk based system with expanded categories to enable a more appropriate quantification of asset risk.

Sincerely.
Brian F. Bara
Vice President
McHenry Savings Bank


PROPOSED RISK-BASED CAPITAL FORMULA
(* INDICATES NEW CATEGORY)

0% Risk Weight Category
Cash on Hand
U.S. Treasuries
*Interest-Earning Deposits (CD's) < $100,000

20% Risk Weight Category
Cash Items
Correspondent Banks
Fed Funds Sold
FHLB Stock
General Obligation Municipal Investments
 Loans Secured By Deposits
Money Market Fund Investments
Municipal Loans
U.S. Agencies
U.S. Agency-Issued MBS's
* Interest-Earning Deposits (CD's) > $100,000
* 1-4 Family First Mortgages with LTV Ratio < 60%
* HE Loans & HELOC's (including 1s( Mtg) with LTV Ratio < 60%
*Commercial Mortgages with LTV Ratio < 20%
*Consumer Loans with LTV Ratio < 25%
* Bank Land & Premises - 50% of Appraisal Value

40% Risk Weight Category
* 1-4 Family First Mortgages with LTV Ratio > 60% and < 75%
* HE Loans & HELOC's (including 1st Mtg) with LTV Ratio > 60% and 175%
* Commercial Mortgages with LTV Ratio < 40%

50% Risk Weight Category
* Other Qualifying Junior Liens
Private-Issue MBS's
Qualifying Construction Loans
Revenue Bond Municipal Investments
*1-4 Family First Mortgages with LTV Ratio > 75%
*HE Loans & HELOC's (including 1st Mtg) with LTV Ratio > 75%
*Commercial Mortgages with LTV Ratio < 50%
*Consumer Loans with LTV Ratio > 25% and < 60%
*Commercial Loans with LTV Ratio < 40%

60% Risk Weight Category
*Commercial Mortgages with LTV Ratio <_ 80%

80% Risk Weight Category
*Commercial Mortgages with LTV Ratio < 80%

100% Risk Weight Category
Allowance for Loan & Lease Losses
Corporate Bond Investments
Loans Past Due 90+ Days
All Other Assets
*Commercial Mortgages with LTV Ratio > 80%
*Consumer Loans with LTV Ratio > 60%.
*Commercial Loans with LTV Ratio > 40%
* Bank Land & Premises - 50% of Appraisal Value
* Unsecured Loans

Off-Balance Sheet items (20% Risk Weight)
Letters of Credit (Cash Collateral)
Letters of Credit (Other Collateral)

Total Adjusted Assets


Last Updated 12/03/2003 regs@fdic.gov

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