FDIC Federal Register Citations

April 12, 2006

Mr. Robert E. Feldman, Executive Secretary
Attn : Comments
Federal Deposit Insurance Corporation
500 17th. St. NW
Washington, D. C. 20429

RE: Comments regarding proposed guidance for “Concentrations in Commercial Real Estate Lending”

Dear Mr. Feldman:

Thank you for the opportunity to comment on the above referenced proposed guidance for “Concentrations in Commercial Real Estate Lending.” While the guidance is helpful, certain major issues were overlooked in their design.

My perspective comes as a community banker with over thirty years of commercial real estate lending experience which included being a regulator with the OCC in the 1970’s, a consultant to numerous problem banks in the Dallas real estate depression in the 1980’s, and as lender through various economic cycles in Kansas, Missouri, Oklahoma, and Texas.

First, the process is flawed because the comment method of gathering information is not the most meaningful way to exchange ideas necessary to help an industry evolve within a constantly changing environment. In the future I would suggest a liaison committee composed of regulators and bankers to develop a structure to ensure more effective design.

The second weakness in the design of the guidance is that it does not differentiate between large slow moving banking institutions and smaller more agile community banks. Obviously the loan portfolio at Citibank or Bank of America is vastly different from smaller banks like American Bank, Baxter Springs, Kansas and the Southwest Community Bank in Ozark, Missouri because of their size and composition.

For community banks, the proposed guidelines are overbearing, create undue regulatory burden and are another step in the regulatory process of micro-managing banks. We object to the exhaustive requirements such as management should develop and implement detailed strategies, policies, procedures and limits that identify, measure, monitor and control CRE risks. Many small community banks already have sufficient guidance in their loan policies to address these concerns.

Third, the guidance does not recognize the significant differences in risks associated with diverse real estate markets like Atlanta, Dallas and San Diego compared with smaller stable markets like Springfield, Missouri. We suggest that the guidance is not needed for banks located in markets that are not subject to significant market cycles. If a market doesn’t decline at least 10.0% in value where is the regulatory concern on loans originally based on 80.0% loan to value ratios or less?

Fourth, we recommend expanding the definitions of construction loans and rental income. The proposals do not differentiate between speculative construction of single family property and custom construction to qualified buyers with takeout commitments. When strong borrowers want to build a personal residence, they should not be considered in the definition.

In addition, rental income loans secured by single family residences and 1-4 family apartment buildings should be excluded from the definition if the loan is performing and the loan to value is less than 80.0%.

Finally, capital adequacy is already addressed by the risk based capital guidelines which effectively require 10.0% capital on every loan made in the categories defined as CRE.

In conclusion, small community banks support safe and sound real estate programs that help their communities by providing affordable housing and build strong banks. However, as noted above, the regulatory guidelines for regulating commercial real estate lending should not micro-manage banks and create an undue regulatory burden. Working together we can achieve reasonable balance in achieving our separate but mutually beneficial goals.

Sincerely,
Mark E. Uhler