ACB: Press Releases

Contact:	Robert Schmermund (202) 857-3104 Jim Eberle (202) 857-3145	Jim Eberle (202) 857-3145 (work) (703) 893-2593 (home) [email protected]	For Immediate Release September 14, 2006 #06-52
E-mail: [email protected]

ACB URGES CHANGES TO BASEL RULEMAKING, PROPOSED COMMERCIAL REAL ESTATE LENDING GUIDANCE

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WASHINGTON, D.C. — America’s Community Bankers urged bank regulators today to make changes in the Basel capital proposals in order to avoid unintended competitive and safety and soundness consequences. ACB also recommended changes to the commercial real estate lending guidance proposed by the regulators.

ACB Chairman F. Weller Meyer testified on both issues at a hearing of the House Financial Institutions Subcommittee. Meyer is also chairman, president and CEO, Acacia Federal Savings Bank, Falls Church, Va.

“We strongly believe that Basel II should not be implemented unless changes are made to Basel I to more closely align capital with risk for other depository institutions,” Meyer said. “It is our hope that Basel II and Basel IA will be risk sensitive without adding significant new regulatory burden.” He strongly recommended that small community banks continue to have the option to comply with Basel I in its current form.

Meyer said the Basel IA standard should permit the majority of banks to more accurately manage their risks and capital requirements, including additional risk buckets to more accurately measure credit risk.

Meyer said that flexibility is the key to creating a successful new capital regime. He urged allowing Basel II banks to choose between the “standardized” or the “advanced” approach as contemplated by the international Basel II Accord.

“In short, the system must result in banks of all sizes having equivalent capital charges against equivalent risk wherever possible,” Meyer said.

Meyer supported the regulators’ intentions to leave a leverage requirement in place. “A regulatory capital floor is necessary to mitigate the imprecision inherent in internal ratings-based systems.”

On the commercial real estate lending issue, Meyer expressed “serious concern about the manner in which the proposed guidance would tie requirements for increased capital levels to concentrations of commercial real estate portfolios.” He said any changes in capital requirements should be considered only as part of the Basel rulemakings, and not through guidance.

ACB suggested other substantial adjustments to the guidance. Meyer said it is not accurate to combine all types of CRE loans into a single “one-size fits all” standard for management of commercial real estate lending. “Different business models and risk profiles dictate different management systems.”

Meyer also said that while hard concentration thresholds are not necessary, at a minimum, any final guidance should focus only on those types of lending that are likely to reflect significant risk exposure. “Different types of commercial real estate have different risk profiles,” he said. “ACB believes that multifamily loans, pre-sold residential construction and construction/permanent financing with either firm takeouts or established cash flows that provide sufficient debt service coverage should be excluded from the definition of CRE loans.”

Click here to read the testimony.

America’s Community Bankers is the national trade association committed to shaping the future of banking by being the innovative industry leader strengthening the competitive position of community banks. To learn more about ACB, visit www.AmericasCommunityBankers.com.

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