FDIC Federal Register Citations

New Buffalo Savings Bank

From: Ron Farina

Sent: Thursday, March 16, 2006 9:26 AM

To: Comments

Subject: Comment on Proposed Real Estate Lending Guidance

Ron Farina

President & CEO

New Buffalo Savings Bank

45 N. Whittaker St.

New Buffalo, MI 49117-1173

March 16, 2006

Comment/Legal ESS Federal Deposit Insurance Corporation

Dear Comment/Legal ESS Federal Deposit Insurance Corporation:

RE: Proposed Guidance-Concentrations in Commercial Real Estate Lending,

Sound Risk Management Practices 71 FR 2302 (January 13, 2006)

Dear Sir or Madam:

As a banker, I appreciate the opportunity to comment on the Proposed

Guidance-Concentrations in Commercial Real Estate Lending, Sound Risk

Management Practices (“Proposed Guidance”) issued by the Office of the

Comptroller of the Currency, the Board of Governors of the Federal Reserve

System, the Federal Deposit Insurance Corporation, and the Office of

Thrift Supervision (“Agencies”). The Proposed Guidance will impose

additional regulation on financial institutions in a mechanical manner.

The proposed guidance adds additional scrutiny to banks with high

concentrations in commercial real estate loans with regard to their

underwriting standards, risk management practices, and capital levels.

Under the proposed guidance, financial institutions are deemed to have a

concentration in commercial real estate loans if one or both of the

following tests are met:

- Total reported loans for construction, land development, and other land

represent one hundred percent or more of the institution’s total capital,

or - Total reported loans secured by multi-family and nonfarm

nonresidential properties and loans for construction, land development,

and other land represent three hundred percent or more of the

institution’s total capital.

March 14, 2006

Page two

The proposed guidance would allow the banking regulators to require banks

to increase their capital levels simply because there is a concentration

of commercial real estate loans.

I believe that commercial real estate is vitally important to the lending

programs of our banks, to revitalize urban communities and to strengthen

the Michigan economy. Any guidance that imposes additional requirements

in a mechanical or arbitrary manner could lead to policy shifts in the

lending practices of our banks that could discourage commercial real

estate lending and encourage more risky types of lending.

The agencies should not impose rigid, arbitrary threshold tests that

ignore the actual risk factors associated with a particular loan.

Thresholds are not appropriate for the reason that different types of

commercial real estate have very different risk profiles. There are huge

differences in risk levels between loans for land development, raw land,

spec home construction, and commercial construction. These risk factors

should be evaluated individually, and not under a mechanical set of

guidelines that fail to account for the uniqueness of the project.

The proposed guidance allows the agencies to require banks to increase

their capital because of a concentration in commercial real estate loans.

The agencies should not have the discretion to arbitrarily require a bank

to increase its capital levels under these circumstances. Appropriate

capital levels should be determined based on a thorough analysis of the

individual bank. All factors should be included when making a

determination that a bank has sufficient capital, including the risk

associated with the bank’s lending practices, not just an arbitrary

standard.

Again, I appreciate the opportunity to comment on, and firmly oppose, the

Proposed Guidance-Concentrations in Commercial Real Estate Lending, Sound

Risk Management Practices.

Thank you.

Sincerely,

Ron Farina

269-469-2222

President & CEO

New Buffalo Savings Bank