NAHB Urges FDIC Not to Penalize Small Banks for Making AD&C Loans

Filed in Housing Finance by on September 14, 2015 1 Comment

NAHB filed comments with the Federal Deposit Insurance Corp. on Sept. 11 regarding a proposed rule by the agency that would revise how it determines deposit insurance assessments for banks with $10 billion in assets or less, which encompasses most community banks.

FDIC’s proposal could raise deposit insurance assessments for banks that carry a greater concentration of construction and development loans on their books. The agency considers these loans a greater risk because many community bank failures during the recent financial crisis were associated with a high portfolio concentration of such assets.

In its comments, NAHB said that FDIC’s proposal is flawed because the agency assumes the nationwide performance of AD&C loans in the past will continue to present an increased level of risk to all small established banks in the future.

NAHB also pointed out that the proposal fails to distinguish between institutions with sound underwriting and risk management practices and those that exhibited a less rigorous approach to acquisition, development and construction (AD&C) lending.

“The proposed rule would penalize banks for future AD&C lending based on past industry events over which many had no control or involvement,” NAHB stated.

NAHB is calling on FDIC to alter its proposed industrywide weighted charge-off rates for construction and development loans and calculate them based on an individual bank’s actual charge-off rate for these loans.

This would provide banks with an incentive to “make good loans and implement sound risk management practices since the performance of their loans would have a direct impact on their deposit insurance assessments,” NAHB said. “At the very least, charge-off rates should be calculated on a regional basis rather than on a nationwide basis in recognition of the significant impact of local economic factors on area businesses.”

For more information email Becky Froass at NAHB or call her at 1-800-368-5242 x8529.

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  1. The government must be stopped from stiffening regulations on community banks, and especially on construction. The big banks, Chase and Citibank, are the ones that need to be regulated, not the neighborhood banks! The big banks betting on derivitives and other bad banking practices led to the collapse of 2007-2008! It did not start with the small banks— the climate created by the big banks no doubt led to the collapse of some of the small banks! And don’t forget— the big banks would have failed and completely destroyed our economy had the government not bailed them out! The small banks did not get any additional help. How unfair this additional regulation of the small banks would be! I wonder if this additional regulation requirement was the idea of the big boys? It would not surprise me at all.

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