Federal Register / Vol. 71, No. 240 / Thursday, December 14, 2006 / Notices 75301 

6Savings associations are reminded that this 

guidance does not affect the existing statutory 

investment limitations as set forth in 12 CFR 

560.30. The statutory investment limit for loans 

secured by nonresidential properties is 400 percent 

of total capital. 

sensitivity of portfolio segments with 

common risk characteristics to potential 

market conditions. The sophistication of 

stress testing practices and sensitivity 

analysis should be consistent with the 

complexity of the institution and risk 

characteristics of its CRE loan portfolio. 

For example, well-margined and 

seasoned performing loans on 

multifamily housing normally would 

require significantly less robust stress 

testing than most acquisition, 

development, and construction loans. 

Portfolio stress testing and sensitivity 

analysis may not necessarily require the 

use of a sophisticated portfolio model. 

Depending on the risk characteristics of 

the CRE portfolio, stress testing may be 

as simple as analyzing the potential 

effect of stressed loss rates on the CRE 

portfolio, capital, and earnings. The 

analysis should focus on the more 

vulnerable segments of an institution’s 

CRE portfolio, taking into consideration 

the prevailing market environment and 

the institution’s business strategy. 

Credit Risk Review Function 

A strong credit risk review function is 

critical for an institution’s selfassessment of emerging risks. An 

effective, accurate, and timely riskrating system provides a foundation for 

the institution’s credit risk review 

function to assess credit quality and, 

ultimately, to identify problem loans. 

Risk ratings should also be risk 

sensitive, objective, and appropriate for 

the types of CRE loans underwritten by 

the institution. Further, risk ratings 

should be regularly reviewed for 

appropriateness. 

Supervisory Oversight 

As part of its ongoing supervisory 

monitoring processes, OTS uses certain 

criteria to identify savings associations 

that may have CRE concentration risk. 

These include savings associations that: 

• Are approaching their HOLA 

investment limits. 

• Have experienced rapid growth in 

CRE lending. 

• Have notable exposure to a specific 

type of or high-risk CRE. 

• Were subject to supervisory concern 

over CRE lending during preceding 

examinations. 

• Have experienced significant levels 

of delinquencies or charge-offs in their 

CRE portfolio. 

A savings association that exhibits 

any of the risk elements described above 

may receive further supervisory analysis 

to ascertain whether its internal 

concentration risk assessment and 

resulting risk management practices are 

commensurate with of the level and 

nature of its CRE exposure. 

OTS will use the above criteria as a 

preliminary step to identify savings 

associations that may have CRE 

concentration risk.6 Because regulatory 

reports capture a broad range of CRE 

loans with varying risk characteristics, 

the supervisory monitoring criteria are 

intended to serve as high-level 

indicators to identify savings 

associations potentially exposed to CRE 

concentration risk. 

For some types of CRE exposures, 

concentration risk may be present well 

before the statutory limit is reached. The 

statutory investment limit of 400 

percent of total capital for nonresidential real estate should not be 

considered a ‘‘safe harbor’’ for savings 

associations with smaller commercial 

real estate exposures. OTS expects all 

savings associations that are actively 

engaged in CRE lending to assess their 

concentration risk and maintain 

adequate risk management policies and 

procedures to control such risks. 

Evaluation of CRE Concentration Risk 

The effectiveness of an institution’s 

risk management practices will be a key 

component of the supervisory 

evaluation of its CRE concentration risk. 

Examiners will evaluate an institution’s 

internal CRE analysis and engage in a 

dialogue with the institution’s 

management to assess CRE exposure 

levels and risk management practices. 

Savings associations that have 

experienced recent, significant growth 

in CRE lending will receive closer 

supervisory review than those that have 

demonstrated a successful track record 

of managing the risks in CRE 

concentrations. 

In evaluating the level of risk, OTS 

will consider the institution’s own 

analysis of its CRE portfolio including 

the presence of mitigating factors, such 

as: 

• Portfolio diversification across 

property types 

• Geographic dispersion of CRE loans 

• Portfolio performance 

• Underwriting standards 

• Level of pre-sold units or other 

types of take-out commitments on 

construction loans 

• Portfolio liquidity (ability to sell or 

securitize exposures on the secondary 

market) 

Assessment of Capital Adequacy 

OTS’s existing capital adequacy 

guidelines note that an institution 

should hold capital commensurate with 

the level and nature of the risks to 

which it is exposed. Accordingly, 

savings associations with CRE 

concentration risks are reminded that 

their capital levels should be 

commensurate with the risk profile of 

their CRE portfolios that includes both 

credit and concentration risks. In 

assessing the adequacy of an 

institution’s capital, OTS will consider 

the level and nature of inherent risk in 

the CRE portfolio as well as 

management expertise, historical 

performance, underwriting standards, 

risk management practices, and market 

conditions. Most savings associations 

currently meet this expectation and will 

not be expected to increase their capital 

levels. However, an institution with 

inadequate capital to serve as a buffer 

against unexpected losses from a CRE 

concentration should develop a plan for 

reducing its CRE concentrations or for 

maintaining capital appropriate for the 

level and nature of its CRE 

concentration risk. 

This concludes the text of the 

Guidance entitled, Concentrations in 

Commercial Real Estate Lending, Sound 

Risk Management Practices. 

Dated: December 7, 2006. 

By the Office of Thrift Supervision. 

John M. Reich, 

Director. 

[FR Doc. E6–21148 Filed 12–13–06; 8:45 am] 

BILLING CODE 6720–01–P 

DEPARTMENT OF VETERANS 

AFFAIRS 

Health Services Research and 

Development Service Merit Review 

Board; Notice of Meeting 

The Department of Veterans Affairs 

(VA) gives notice under Public Law 92–

463, Federal Advisory Committee Act, 

that a meeting of the Health Services 

Research and Development Service 

Merit Review Board will be held march 

6–8, 2007, at the Sir Francis Drake 

Hotel, 450 Powell Street, San Francisco, 

CA. Various subcommittees of the Board 

will meet during that period. Each 

subcommittee meeting of the Merit 

Review Board will be open to the public 

the first day for approximately one halfhour from 8 a.m. until 8:30 a.m. to cover 

administrative matters and to discuss 

the general status of the program. The 

remaining portion of each meeting will 

be closed. The closed portion of each 

meeting will involve discussion, 

examination, reference to, and oral 

review of the research proposals and 

critiques. 


rwilkins on PROD1PC63 with NOTICES
75302 Federal Register / Vol. 71, No. 240 / Thursday, December 14, 2006 / Notices 

The purpose of the Board is to review 

research and development applications 

concerned with the measurement and 

evaluation of health care services, the 

testing of new methods of health care 

delivery and management, and nursing 

research. Applications are reviewed for 

scientific and technical merit. 

Recommendations regarding funding are 

prepared for the Chief Research and 

Development Officer. 

On Wednesday, March 7, six 

subcommittees will convene from 8 a.m. 

to 5 p.m. Those subcommittees are 

Implementation and Management 

Research Science, Chronic Disease 

Management & Long Term Aging, 

General Health Services Research, 

Special Populations, Equity/Women’s 

Health and the Nursing Research 

Initiative (NRI). On Thursday, March 8, 

five subcommittees will convene from 8 

a.m. to 5 p.m. Those subcommittees are 

Implementation and Management 

Research Science (continuation), 

Special Populations (continuation), 

General Health Services Research 

(continuation), Chronic Disease 

Management (continuation) and Equity/ 

Women’s Health review group 

(continuation). 

After the subcommittees meet there 

will be a debriefing provided to 

members of Health Services Research & 

Development Service Scientific Merit 

Review Board. This debriefing, by 

teleconference, will be to discuss the 

outcomes of the review sessions and to 

ensure the integrity and consistency of 

the review process. 

During the closed portions of the 

meetings on March 7–8, discussion and 

recommendations will include 

qualifications of the personnel 

conducting the studies (the disclosure of 

which would constitute a clearly 

unwarranted invasion of personal 

privacy), as well as research information 

(the premature disclosure of which 

would be likely to compromise 

significantly the implementation of 

proposed agency action regarding such 

research projects). As provided by 

subsection 10(d) of Public Law 92–463, 

as amended by Public Law 94–409, 

closing portions of these meetings is in 

accordance with 5 U.S.C. 552b(c)(6) and 

(9)(B). 

Those who plan to attend the open 

session should contact the Scientific 

Merit Review Program Manager (124R), 

Health Services Research and 

Development Service, Department of 

Veterans Affairs, 1722 Eye Street, NW., 

Washington, DC 20006 at least five days 

before the meeting. For further 

information, call (202) 254–0207. 

By Direction of the Secretary. 

Dated: December 7, 2006. 

E. Philip Riggin, 

Committee Management Officer. 

[FR Doc. 06–9663 Filed 12–13–06; 8:45 am] 

BILLING CODE 8320–01–M 


rwilkins on PROD1PC63 with NOTICES