FOR IMMEDIATE RELEASE
ICBA Raises Community Bank Concerns, Offers Alternatives to CRE and Basel II Plans
Overly Burdensome Rules Hurt Consumers and Communities
Washington, D.C. (Sept. 14, 2006)—The Independent Community Bankers of America (ICBA) told a House Financial Services panel that proposed federal guidelines on commercial real estate (CRE) lending are seriously flawed and strongly urged the banking agencies not to go forward with the guidance in its current form. ICBA also told lawmakers that the overly complex Basel II international capital rules place community bankers at a competitive disadvantage with the nation's large banks.
"Banks will suffer financially and so will their communities-unnecessarily," said James H. McKillop III, president and CEO of the Independent Bankers' Bank of Florida, Lake Mary, Fla., representing ICBA on the proposed guidance on commercial real estate lending. "The proposed thresholds of 100 percent of capital and 300 percent of capital do not give a clear picture of risk. They do not take into account the underwriting and risk management practices of individual banks. They do not recognize that different segments of the CRE markets have different levels of risk."
"We fear the guidance will lead to an artificial credit crunch in the CRE sector with less money available to support community growth," said McKillop.
ICBA said existing real estate lending standards, regulations and guidelines are sufficient to guide banks through any weakness in the CRE market, and already provide examiners the tools to address any unsafe and unsound practices of individual banks. "Community banks view the new guidance as unnecessary," said McKillop, noting that bank regulators have said they have identified problems in some banks, yet would apply this guidance across the entire industry. ICBA is asking that regulators identify and address problems bank by bank.
Since bank regulators proposed the new guidance, ICBA has argued that community banks intimately know their markets and conservatively underwrite and manage CRE loans. They require higher down payments or take other steps to offset credit risks and concentrations. They carefully inspect collateral and monitor loan performance and the borrower's financial condition. Many community banks already have capital in excess of current minimum standards.
In its testimony on Basel II, ICBA said it supports allowing Basel II banks to use the "standardized approach" instead of the advanced approach to reduce costs and complexity and mitigate competitive disparities between Basel II and Basel I banks. ICBA expressed support for efforts to revise Basel I, as long as highly capitalized community banks can elect to continue using existing risk-based capital rules to avoid unnecessary regulatory burden. ICBA called for regulators to examine the competitive impact of Basel II and IA during 2008, and if there continues to be a competitive disparity between the two accords, to hold off on the Basel II transition period until Basel II is fundamentally revised.
Read ICBA's full testimony at www.icba.org.