Skip Header

Federal Deposit
Insurance Corporation

Each depositor insured to at least $250,000 per insured bank



Home > Regulation & Examinations > Laws & Regulations > FDIC Federal Register Citations




FDIC Federal Register Citations
From: Peter Dello Russo [mailto:pdrusso@bridgewatersavings.com] 
Sent: Tuesday, March 07, 2006 11:22 AM
To: Comments
Subject: FDIC 2006-01, OCC Docket No. 06-01, Federal Reserve Docket No. OP-1248, OTS No. 2006-1

Peter Dello Russo
756 Orchard Street
Raynham, MA 02767-1028


March 7, 2006

Robert E. Feldman
Executive Secretary
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429


Dear Mr. Feldman:

As a community banker, I appreciate the opportunity to comment on the 
proposed guidance entitled Concentrations in Commercial Real Estate 
Lending, Sound Risk Management Practices (Guidance).  While I understand 
that the federal regulatory agencies have expressed concern with the high 
concentrations of commercial real estate loans at some institutions, I 
believe the proposed guidance will have a serious impact on community 
banks and local economies in general.

Commercial real estate (CRE) lending has been an important business line 
for my institution and many other banks in Massachusetts.  Community banks 
play an essential role in creating local economic growth by providing 
credit to small and medium-sized businesses for construction and land 
development. The proposed guidance will place a significant regulatory 
burden on banks that have a market niche in commercial real estate loans, 
limiting the institution’s future growth in this area and possibly forcing 
some banks out of the market altogether.

I am particularly concerned with the “one-size-fits-all” nature of the 
proposed guidance.  Institutions are automatically classified as having a 
“CRE concentration” simply if they exceed the thresholds.  Portfolio 
diversification or other risk mitigation procedures are not taken into 
consideration.  Because real estate markets vary greatly from region to 
region, and even within a particular state, the agencies should focus more 
attention on local market conditions and the overall condition of the 
individual institution than generic thresholds broadly applied to all 
banks.

The guidance encourages institutions to adopt a series of the proposed 
risk management principles if a CRE concentration exists.  While many 
banks may have some of these procedures in place, others will be 
cost-prohibitive for community banks.  For instance, there are few 
effective stress tests available to smaller institutions.  If institutions 
are unable to adopt these principles, some may leave the CRE market 
altogether.  This will disproportionately affect urban areas, since the 
guidance exempts many of the loans made in rural areas from the threshold 
calculations.  Many times, community banks are the only source of credit 
available to small business owners in these distressed areas. Forcing 
banks to reduce or abandon CRE lending in these neighborhoods could 
inhibit revitalization efforts and leave business owners with no choice 
but to turn to more expensive forms of credit.

In addition, the guidance recommends increased capital levels for banks 
with CRE concentrations.  This requirement will place a serious burden on 
mutual institutions, which represent 70 percent of the banks in 
Massachusetts and who rely on earnings as their sole source of new 
capital.  Therefore, these institutions would be forced to reduce levels 
of a strong earning asset in commercial real estate during a period of 
significantly reduced margins.

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 I 
encourage the agencies to better coordinate their efforts in this area.

Thank you again for the opportunity to comment on the proposed guidance 
and for considering my views.

Sincerely,


Peter Dello Russo


Last Updated 03/08/2006 Regs@fdic.gov

Skip Footer back to content