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WASHINGTON – While Acting NCUA Chairman Dennis Dollar is preparing to give credit unions some regulatory flexibility, the Office of the Comptroller of the Currency (OCC) has announced a pilot program to do the same for national banks. The program is aimed at smaller community banks, according to Comptroller John Hawke, Jr., who explained that the way the program is structured, banks with more than $1 billion in assets could not participate. Typically, national banks are permitted to lend no more than 15% of their capital on an unsecured basis to a single borrower. Many states allow the state chartered banks to lend beyond that amount. The three-year long pilot program will create a wild card provision for national banks, allowing the national banks with the highest supervisory ratings to lend up to the limit permitted by the state in which it operates, but no more than 25% of capital to a single borrower for small business loans and loans secured by a perfected first-lien security interest in 1-4 family real estate not to exceed 80% of the property’s appraised value. One reason behind the pilot program is to test the waters on how much interest there is among bankers in higher caps. “As a practical matter,” Hawke explained in a statement, “because of the limits we have imposed, a bank will not be able to use the new authority for more than ten customers in its fullest extent.” To participate in the program, a bank must be rated a CAMEL 1 or 2 , with at least a 2 for the asset and management components of the test. Dollar initially had a requirement for a 1 in the management category for his Reg-Flex proposal, but scrapped the idea after the initial comment period for the Advance Notice of Proposed Rulemaking. Eligible banks must also file an application with the regulator in order to participate so the OCC can monitor the program. Similar to the credit union community, many national banks have expressed concern that they are held at a competitive disadvantage to their state chartered counterparts. While the “flight from the federal charter,” as some have characterized it appears to be slowing, the credit union trade associations are still concerned about the issue. The Comptroller stressed that loans under this program may still fall under criticism from the agency if they are poorly underwritten or lead to excessive concentrations in particular loans. Additionally, the OCC reserves the right to rescind a participating bank’s authority to use the expanded limits if safety and soundness problems arise. The pilot program will take effect 90 days after publication in the Federal Register, which occurred June 11 of this year. [email protected]

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