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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




Last Updated 03/16/2006 Regs@fdic.gov

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