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FDIC Federal Register Citations Cambridge Savings Bank March 10, 2006 Mr. Robert E. Feldman – Executive Secretary Re: Proposed Guidance Dear Mr. Feldman: We appreciate the opportunity to comment on the proposed guidance referenced above. Cambridge Savings Bank is a 14 branch, $2.0 billion state chartered community bank with its main office in Cambridge, Massachusetts. The Bank's current total loan portfolio is $1.4 billion, which includes $445 million of commercial real estate loans as defined under the proposed guidance. While we recognize that the federal banking regulatory agencies have expressed concern with the growing concentrations of commercial real estate loans at some institutions, we believe the proposed guidance is too broad in its definitions and application, and will have a serious impact on community banks. Though limits can be appropriate and, in all cases, appropriate risk management practices should be in place and continually reviewed and improved, we believe the proposed guidance should be reviewed to incorporate the following concerns: First, though the definition of what constitutes a CRE loan for this purpose is generally appropriate (i.e. excluding owner-occupied commercial properties), the category is very broad and it equates a very seasoned, low loan-to-value loan with a new speculative development loan. Even within the Construction/Development definition itself, a build-to-suit project is equated with a speculative loan though they carry differing risk profiles. Consideration should be given to the risk profile of the loans under consideration and additional exposure levels should be considered for the lower risk, seasoned loans contained in bank loan portfolios. Second, the amount of capital associated with commercial real estate industry is much greater than existed in the late 1980’s and early 1990’s. In that era, the lack of capital was one of many contributing factors for the depressed commercial real estate values. Today, the amount of private and public capital for commercial real estate, both at the debt and equity levels, is significant, and appears to be a permanent change in the marketplace. Though it is difficult to define, we believe this trend could improve the cyclicality of the CRE business from historical norms and should be taken into account in regulatory considerations. Finally, the proposed guidance comes at a time when the agencies are also proposing changes to the capital system through the Basel I-A process. Both proposals could have a significant impact on community banks and we encourage the agencies to consider coordinating their efforts in this area. Thank you again for the opportunity to comment on the proposed guidance and for considering our view. Sincerely, Mark H. Teden Cc: Massachusetts Bankers Association, Jon Skarin
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| Last Updated 03/14/2006 | Regs@fdic.gov | |