He Said, She Said -- FDIC and OTS Differ on CRE Guidance?

Last week, agency heads for both OTS and FDIC addressed America's Community Bankers.  Commercial Real Estate (CRE) issues are important to both agencies, although they appear to have a somewhat different take on the January 2006 Proposed Joint Agency Guidance on Commercial Real Estate.

On Oct. 15, 2006, OTS Director John Reich noted that the January 2006 Guidance was developed in response to the dramatic increase in CRE lending by banks between $100M and $10B, which he termed small-to-mid-sized community and regional financial institutions.  Acknowledging industry complaints about regulatory burden and the perception of "hard limits" on CRE loans, Reich said that, in his view, the Interagency Guidance is only a "reference" for financial institutions and examiners, not a limit or threshold above which CRE lending is "suspect or barred".  He further said that he "remains uncomfortable with the particular numerical thresholds set forth in the proposed guidance".

On Oct. 17, 2006, FDIC Chairman Sheila Bair also acknowledged that the Interagency Guidance contains "benchmarks, not caps".  However, her remarks focused more sharply on CRE as a lending area that warrants examiner scrutiny.  She said, " Portfolio concentrations in CRE assets have been increasing.  At the end of June, over 1,700 insured banks and thrifts -- almost 20 percent of the industry -- reported both construction and development loans that exceeded their roral capital and commercial real estate loans that exceeded 300 percent of total capital. Construction loan growth has been very high, almost 32 percent over the past year.  These trends have caused the regulators to take a close look at risk management practices in this type of lending."

From these speeches, it appears that the Federal Banking Agencies have a ways to go before they achieve agreement sufficient to issue the Final CRE Guidance.

Link to Reich Speech:  www.ots.treas.gov/docs/8/87125.pdf

Link to Bair Speech:  www.fdic.gov/news/news/speeches/chairman/spoct1706.html

Link to Proposed Interagency CRE Guidance:  http://a257.g.akamaitech.net/7/257/2422/01jan20061800/edocket.access.gpo.gov/2006/pdf/06-340.pdf

(ag) Oct. 23, 2006, in Lending Issues/Federal Banking Agencies/FDIC/OTS