WASHINGTON – In a rare twist, the Independent Community Bankers of America is opposing a regulator proposal that CUNA says is greatly needed. The Office of the Comptroller of the Currency's proposal considers a bank or thrift at risk if its total loans in construction, land development or other land represent 100% or more of its capital or if total loans secured by multifamily and nonresidential properties and loans for construction, land development and other land exceed 300% of capital. If the threshold is exceeded, then the institution must hold capital beyond the normal regulatory minimum requirements. “If a broad message is sent across the banking industry that absolute levels of CRE lending are inherently unsafe and unsound, banks will respond and cut back on CRE lending, which will unnecessarily curtail their earnings ability and the growth of their communities,” said Karen Thomas, ICBA executive vice president, director, government relations group. CUNA President/CEO Dan Mica previously said the OCC proposal makes sense because it protects the safety and soundness of the banking system and could prevent a savings and loan and banking crisis similar to the one in the 1980s and early `90s. ICBA noted that community banks “strongly object” to the proposed arbitrary thresholds for determining CRE concentrations because they are not reliable measures of true risk in the bank. “Community banks believe that they have taken significant steps since previous CRE downturns; they underwrite loans conservatively, have better staff resources and higher capital and thus are in a better position to withstand weakness,” Thomas said. “Because they lend in limited geographic areas and typically have a close customer relationship, they are in a good position to closely monitor their CRE loans and economic factors impacting them.” ICBA said many community banks are likely to be affected by the proposal. The Federal Deposit Insurance Corp. estimates CRE loans constitute 258% of capital of the 8,235 banks with less than $1 billion in assets. Thomas pointed out that many of these banks have relied on commercial real estate lending for growth and profitability and may not have as diverse a portfolio as banks with assets greater than $1 billion due to the more limited markets they serve. CRE lending has made up at least two-thirds of asset growth at community banks each year since 2001, according to ICBA. Twenty-eight percent of total community bank assets were in CRE loans as of March 2005, the trade group discovered. Mica wrote in an April 14 letter to the OCC that supporting the regulator's guidelines is a “common sense approach to protect the safety and soundness of the banking system” and “problems in this industry can have a profound affect on many other aspects of our economy, as well as the federal government.” CUNA specifically pointed to the bank and savings and loan crisis in the 1980 and early `90s as “the most notorious” example of how “lax supervision” by federal banking regulators “has cost the economy hundreds of billions of dollars” in taxpayer funds for a bailout of troubled banks and thrifts. Meanwhile, ICBA is urging regulators to rely on existing rules, regulations and guides for management of risks in CRE lending to ensure banks take appropriate steps to protect their safety and soundness when they are experiencing high levels of lending growth, particularly in industries such as CRE where history demonstrates that significant downturns can occur. “The banking regulators should address problems on an individual bank basis, rather than issue broad “one size fits all” guidance that may cause community banks to curtail their CRE lending when it is not necessary for safety and soundness,” Thomas said. -

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