Commercial Real Estate Lending Proposed Interagency Guidance

Financial Institution Letter

FIL-4-2006

January 13, 2006

COMMERCIAL REAL ESTATE LENDING

Proposed Interagency Guidance

Federal Deposit Insurance Corporation

550 17th Street NW, Washington, D.C. 20429-9990

Summary: The federal bank and thrift regulatory agencies are seeking comment on the

attached proposed interagency guidance relating to sound risk-management practices for

concentrations in commercial real estate (CRE) lending. Comments are due by March 14, 2006.

Distribution:

FDIC-Supervised Banks (Commercial and Savings)

Suggested Routing:

Chief Executive Officer

Chief Lending Officer

Compliance Officer

Related Topics:

Real Estate Lending Standards

Publishing Requirements

Attachment:

Proposed Interagency Guidance

Contacts:

James Leitner, Senior Examination Specialist,

Division of Supervision and Consumer Protection,

on (202) 898-6790 or Benjamin W. McDonough,

Attorney, Legal Division, on (202) 898-7411

Note:

FDIC financial institution letters (FILs) may be

accessed from the FDIC's Web site at

www.fdic.gov/news/news/financial/2006/index.html.

To receive FILs electronically, please visit

http://www.fdic.gov/about/subscriptions/fil.html.

Paper copies of FDIC financial institution letters

may be obtained through the FDIC's Public

Information Center (1-877-275-3342 or 202-416-

6940).

Highlights:

•

The Federal Deposit Insurance Corporation

(FDIC), the Office of the Comptroller of the

Currency, the Board of Governors of the Federal

Reserve System, and the Office of Thrift

Supervision have proposed the attached

guidance addressing sound risk-management

practices for concentrations in CRE lending.

•

Concentrations of CRE loans may expose

institutions to unanticipated earnings and capital

volatility in the event of adverse changes in the

general commercial real estate market

ncy, the Board of Governors of the Federal

Reserve System, and the Office of Thrift

Supervision have proposed the attached

guidance addressing sound risk-management

practices for concentrations in CRE lending.

•

Concentrations of CRE loans may expose

institutions to unanticipated earnings and capital

volatility in the event of adverse changes in the

general commercial real estate market.

•

The proposed guidance reinforces existing

guidelines for real estate lending and provides

criteria for identifying institutions with CRE loan

concentrations that may warrant greater

supervisory scrutiny. Such institutions should

have robust risk-management systems in place

and capital levels higher than the regulatory

minimums and appropriate to the risk associated

with these concentrations.

•

The FDIC encourages institutions to review the

attached Federal Register notice and to comment

on the scope of the definition of CRE and on the

appropriateness of the thresholds for determining

elevated concentration risk.