WASHINGTON – In a rare twist, the Independent Community Bankersof America is opposing a regulator proposal that CUNA says isgreatly needed. The Office of the Comptroller of the Currency'sproposal considers a bank or thrift at risk if its total loans inconstruction, land development or other land represent 100% or moreof its capital or if total loans secured by multifamily andnonresidential properties and loans for construction, landdevelopment and other land exceed 300% of capital. If the thresholdis exceeded, then the institution must hold capital beyond thenormal regulatory minimum requirements. “If a broad message is sentacross the banking industry that absolute levels of CRE lending areinherently unsafe and unsound, banks will respond and cut back onCRE lending, which will unnecessarily curtail their earningsability and the growth of their communities,” said Karen Thomas,ICBA executive vice president, director, government relationsgroup. CUNA President/CEO Dan Mica previously said the OCC proposalmakes sense because it protects the safety and soundness of thebanking system and could prevent a savings and loan and bankingcrisis similar to the one in the 1980s and early `90s. ICBA notedthat community banks “strongly object” to the proposed arbitrarythresholds for determining CRE concentrations because they are notreliable measures of true risk in the bank. “Community banksbelieve that they have taken significant steps since previous CREdownturns; they underwrite loans conservatively, have better staffresources and higher capital and thus are in a better position towithstand weakness,” Thomas said. “Because they lend in limitedgeographic areas and typically have a close customer relationship,they are in a good position to closely monitor their CRE loans andeconomic factors impacting them.” ICBA said many community banksare likely to be affected by the proposal. The Federal DepositInsurance Corp. estimates CRE loans constitute 258% of capital ofthe 8,235 banks with less than $1 billion in assets. Thomas pointedout that many of these banks have relied on commercial real estatelending for growth and profitability and may not have as diverse aportfolio as banks with assets greater than $1 billion due to themore limited markets they serve. CRE lending has made up at leasttwo-thirds of asset growth at community banks each year since 2001,according to ICBA. Twenty-eight percent of total community bankassets were in CRE loans as of March 2005, the trade groupdiscovered. Mica wrote in an April 14 letter to the OCC thatsupporting the regulator's guidelines is a “common sense approachto protect the safety and soundness of the banking system” and“problems in this industry can have a profound affect on many otheraspects of our economy, as well as the federal government.” CUNAspecifically pointed to the bank and savings and loan crisis in the1980 and early `90s as “the most notorious” example of how “laxsupervision” by federal banking regulators “has cost the economyhundreds of billions of dollars” in taxpayer funds for a bailout oftroubled banks and thrifts. Meanwhile, ICBA is urging regulators torely on existing rules, regulations and guides for management ofrisks in CRE lending to ensure banks take appropriate steps toprotect their safety and soundness when they are experiencing highlevels of lending growth, particularly in industries such as CREwhere history demonstrates that significant downturns can occur.“The banking regulators should address problems on an individualbank basis, rather than issue broad “one size fits all” guidancethat may cause community banks to curtail their CRE lending when itis not necessary for safety and soundness,” Thomas said. -

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