Federal Deposit
Insurance Corporation

From: Deneen Fayette [mailto:dfayette@gpsbank.com]
Sent: Wednesday, April 12, 2006 2:36 PM
To: Comments
Subject: Commercial Real Estate Lending Proposed Interagency Guidance FIL-4-2006

As a community banker, I would like to share with you my thoughts on the proposed guidance, Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices.

Our bank, as with most community banks, is underwriting our commercial real estate (CRE) loans conservatively. We carefully inspect collateral and monitor loan performance and the borrower’s financial condition. We lend within our community and are close to our customers. We are positioned well to know the condition of our local economy and our borrowers.

There already exists a body of real estate lending standards, regulations, and guidelines. Examiners have the necessary tools to enforce them and address unsafe and unsound practices. As such, the proposed guidance is unnecessary. Regulators should address CRE management problems bank by bank, not by a broad brush across the banking industry.

The proposed threshold limits of CRE loans to capital are too restrictive and do not take into account the lending and risk management practices of individual institutions. They also do not recognize that different segments of the CRE markets have different levels of risk. Thus, the thresholds may not give an accurate picture of the risk in an institution.

Community banks already hold capital at levels above minimum standards and should not need to raise additional capital because their CRE loans exceed the proposed thresholds. Regulators should consider the bank’s allowance for loan losses and current capital levels along with risk management practices.

The proposed guidance is unfairly burdensome for community banks that do not have opportunities to raise capital or diversify their portfolio to the extent that larger regional banks can. The CRE portfolios of many community banks have grown in response to the needs of their community. If community banks are pressured to lower their CRE exposures, their ability to generate income and more capital will be constrained and they will lose good loans to larger competitors.

The proposal’s recommendations regarding management information system reports will be particularly costly and burdensome to community banks; the costs will most likely out weigh the benefits for smaller banks.

Additionally, I do not believe that 1-4 family residential construction supported by contracts and take-out commitments (custom homes) should be included in the calculation of total CRE loans. At many community banks like ours, the majority of the Call Report RC-C 1a category includes residential lending. For example, using our 12-31-05 Call Report information and the definition of CRE in the proposal, our small community bank would have a CRE to total capital ratio of 347.88%. Excluding 1-4 family custom residential lending from the calculation, the percentage fall to 207.04%. Excluding all residential lending (lots, customs, specs, models) our ratio is only 181.92%.

For these reasons, I urge you not go forward with the guidance as it has been proposed. Instead, regulators should use the regulatory tools already in place to identify and address CRE lending risks where they truly exist and abandon the proposed thresholds that are too restrictive and misleading.