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ICBA Urges Bank Regulators Not to Adopt Proposed Commercial Real Estate Lending Guidance

Current Broad-Brush Plan Would Choke Off Lending in Local Communities

Washington, D.C. (April 13, 2006)—The Independent Community Bankers of America (ICBA) strongly urged federal banking regulators not to go forward with their flawed proposed guidance on commercial real estate lending. Rather than adopt a new one-size-fits-all regulatory standard, regulators should rely on existing standards for commercial real estate lending and address any risk management problems at individual banks. The proposed standards, Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices, could choke off lending in communities nationwide when it is not necessary for bank safety and soundness.

"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," ICBA said in a letter to federal banking regulators. "We urge the regulators not to go forward with the guidance as proposed and instead send a clear message to banks and their examiners that growth in CRE lending can occur, consistent with safety and soundness, when banks take the steps to manage it properly."

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. 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.

The complete comment letter is available at www.icba.org.