New regulations could hurt banks

New regulations could hurt banks

Banking by Janet Leiser | Senior Editor

Gulf Coast community bankers protest federal regulators' proposal to limit commercial real estate loans.

Signature Bank CEO/President David Feaster says there's not a banker he's worked with in his three-decade career that would knowingly make a bad loan, so regulators shouldn't arbitrarily limit how much banks can lend to real estate developers.

"The community bank boards own the banks," Feaster says. "They don't want bad loans on the book. They're watching out for their own pocketbook."

Feaster is one of a large group of community bankers that have written letters (see sidebar) protesting federal regulators' proposal to limit how much of a bank's portfolio can involve commercial real estate loans.

The Federal Depository Insurance Corp. and other regulators are considering new guidelines to protect against a repeat of two decades ago when plummeting real estate values caused bank failures. The savings and loan bailout cost billions.

But Feaster and others say the situation is different today: For one thing, banks learned from those mistakes and no longer loan 100% of a project's value based on speculation. Developers must show contracts for presales prior to construction to obtain loans.

Florida Bankers Association CEO Alex Sanchez says the state's banks rely heavily on commercial real estate lending since Florida's economy is primarily real estate driven, and additional rules could cause an economic slowdown.

Says Feaster: "There's a clear softening in real estate. Nobody is debating that. There's just disagreement on how we should react to that. The federal government wants to tie our hands, and the community bankers just feel we'll continue to make prudent loans in light of a continued downturn in real estate."

The Florida Bankers Association has taken the lead in the state in opposing a possible overreaction by federal and state regulators. Sanchez says bankers are relieved to see that John Reich, director of the Office of Thrift Supervision, recently voiced his opposition to the imposition of additional rules on commercial real estate loans.

Bankers say regulators' concern is justified. In Florida, as much as 80% of all bank loans involves commercial real estate.

"We need to be prudent in the underwriting because there are clear apparent weaknesses in the real estate industry right now," Feaster says. "But that doesn't mean we should absolutely cut off lending in that sector."

First Commercial Bank of America CEO/Chairman Kenneth Cherven says: "Most of the banks would be in violation of those [proposed] guidelines."

Feaster says, "We're not seeing a history of losses by the community banks. Most of us are dealing with very solid builders. I hate to lose the potential for that market share."

When asked if bankers are overreacting to the new guidelines, Feaster says: "Is it an overreaction by the federal government? That's more of a debate."

Sanchez says, "What we're saying to them is, 'look, why put this warning out? You have the authority to do this already.'"

Federal regulators examine banks annually, Sanchez says. If they find one is undercapitalized, they should tell it raise additional capital.

"One size doesn't fit all," Sanchez says.

Bank of Tampa CEO A. Gerald Divers is one of the few local bankers that says he supports stricter guidelines.