FDIC Federal Register Citations

From: John A. DiMichele [mailto:jdimichele@communitybizbank.com]
Sent: Wednesday, April 12, 2006 2:05 PM
To: Comments
Subject: CRE Guidance, Docket Numbers: 06-01, OP-1248, 2006-1

John A. DiMichele
1550 Harbor Blvd. #200
West Sacramento, CA 95691-3828

April 12, 2006

Comments to FDIC

Dear Comments to FDIC:

Community Business Bank is a four month old De Novo Bank located in West Sacramento California, As a community banker, I would like to share with you my thoughts on the proposed guidance, Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices.

Most community banks like Community Business Bank are underwriting their CRE loans conservatively. They carefully inspect collateral and monitor loan performance and the borrower’s financial condition. Community bankers lend in their communities and are close to their customers. Thus they are positioned well to know the condition of their local economy and their borrowers. Further more we are activiely involved in our community's redevelopment and in fill plans which CRE lending is a vital part of bringing to reality.

Community banks have adjusted their risk management practices and capital levels since previous downturns in commercial real estate lending and are now better equipped to handle future downturns. We have all learned from our previous mistakes.

There already exists a body of real estate lending standards, regulations and guidelines. Examiners have the necessary tools to enforce them and address unsafe and unsound practices; the proposed guidance is
unnecessary. Regulators should address CRE management problems bank by bank, not by broad brush across the banking industry.

The proposed threshold limits of CRE loans to capital are too restrictive and do not take into account the lending and risk management practices of individual institutions. They also do not recognize that different
segments of the CRE markets have different levels of risk. Thus, the thresholds may not give an accurate picture of the risk in an individual institution.

Community banks already hold capital at levels above minimum standards and should not need to raise additional capital because their CRE loans exceed the proposed thresholds. Regulators should consider the bank’s allowance for loan losses and current capital levels along with risk management practices.

The proposed guidance is unfairly burdensome for community banks that do not have opportunities to raise capital or diversify in their portfolio to the extent that larger regional banks can. The CRE portfolios of many community banks have grown in response to the needs of their community. If community banks are pressured to lower their CRE exposures, their ability to generate income and more capital will be constrained and they will lose good loans to larger competitors.

The proposal’s recommendations regarding management information system reports will be particularly costly and burdensome to community banks; the costs will most likely out weigh the benefits for smaller banks. Over the 29 years I have been in Community Banking I have seen the products and service that community banks offer be raided by competition that are not under the same regulatory requirements that community banks must live under. The CRE guidance is another example of an unfair playing field.

For these reasons, I urge you NOT to go forward with the guidance as it has been proposed. Instead, regulators should use the regulatory tools already in place to identify and address CRE lending risks where they truly exist and abandon the proposed threshholds that are too restrictive and misleading.

Sincerely,
John A. DiMichele