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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
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