|
FDIC Federal Register Citations
First National Bank of Deerwood
From: Vanessa Fordyce [mailto:vanessaf@deerwoodbank.com]
Sent: Thursday, March 09, 2006 12:18 PM
To: Comments
Subject: Comment
March 9, 2006
First National Bank of Deerwood is pleased to have the opportunity to
comment on the proposed guidance on sound risk management practices for
concentrations in commercial real estate lending. First National Bank of
Deerwood is a $210 million dollar bank located in Deerwood, Minnesota.
First National Bank of Deerwood wishes to express its concerns with the
proposed guidance and requests that the regulatory agencies consider whether
such guidelines are justified considering the detrimental impact they will
have on the community banking system.
First National Bank of Deerwood appreciates the fact that community banks
are making more commercial real estate loans than ever before. This is
because many types of loans historically made by banks are now made almost
exclusively by other types of financial institutions. For example, captive
finance companies and realty companies are able to capture auto loan
business and mortgage loan business at the point of sale, making it
difficult for banks to compete, since banks are not allowed to own car
dealerships or real estate brokerages. The Farm Credit System uses
government subsidized dollars to take over the agricultural loan and rural
mortgage loan market. Now with the Horizons Project, Farm Credit plans to
take over the entire rural loan market, including commercial loans. Credit
unions use their tax- and regulatory-advantaged status to make all types of
loans, including commercial loans, at a lower cost. It is significant that
credit unions are not subject to the proposed guidance, which is yet another
regulatory advance for them. With their opportunities to make loans
dwindling, community banks have focused on commercial real estate loans as
an area where they can be competitive and still make safe and sound loans.
It is interesting that the agencies have chosen to single out commercial
real estate loans as an area of concentrated risk, rather than focusing on
other types of loans that present greater risk, such as commercial loans not
secured by mortgages. Considering the comparatively low loan-to-value
guidelines for commercial real estate, the MBA believes that commercial real
estate loans present a lesser risk of loss than most other loans. It is
also curious that all types of commercial real estate loans are lumped
together as if they all present the same types of risk when the risk
inherent in commercial real estate loans may vary widely depending on the
collateral, the source of repayment, and other factors. First National Bank
of Deerwood does not believe that all commercial real estate loans should be
lumped together, but if they must be, then regulators should recognize that
they do not create a greater risk of loss than other types of lending.
It is our position that the vast majority of bankers are well aware of any
concentrations in their portfolio and the risks they may create and that all
banks should not be painted with the same broad brush. Bank owners and
management know their communities, their customers, the value of commercial
real estate in their areas and the risks present in their portfolios. Those
few that don't should receive additional regulatory attention, but it isn't
necessary for the agencies to burden the entire community banking system.
It would be sufficient for the agencies to point out to banks that
concentrations exist in their portfolio and point out the risks inherent in
that concentration. One might respond that the guidance is intended to do
just that. However, if past experience with "guidance" is any indication,
field examiners will expect complete adherence to all aspects of such
guidance, just as if it were a regulation. And complete adherence in this
case will end up costing community banks a significant amount of time and
money, further impairing their ability to compete.
The regulatory burden that would result from this guidance is significant.
Obviously, banks should have systems for monitoring their portfolios.
However, the guidance goes far beyond what is necessary for most banks to
manage their risks by requiring things such as new policies and procedures,
reports on market conditions, strategic planning, stress testing,
sensitivity analyses, and the list goes on. It seems incongruous that
regulators express concern about the regulatory burden on community banks,
knowing that it is a significant factor in putting community banks out of
business, and then introduce guidance targeted at community banks that will
increase their burden even more.
On top of all the new risk-management techniques community banks will be
required to employ, community banks with perceived concentrations will also
be expected to have an increased level of capital and loan loss reserves.
Those two requirements alone will threaten the survival of community banks
by increasing their costs to make loans. How can community banks be
expected to compete in a playing field that was already uneven against
credit unions, the Farm Credit System, and large banks that don't have to
comply with such requirements?
First National Bank of Deerwood asks the agencies to consider whether the
risk of concentrations of commercial loans secured by mortgages justifies
the additional regulatory burden and additional risks to the viability of
the community bank system. We thank you for your consideration.
Sincerely,
John L. Ohlin
President
First National Bank of Deerwood
P.O. Box 520
Deerwood MN 56444
|
