74580 Federal Register / Vol. 71, No. 238 / Tuesday, December 12, 2006 / Notices 

1CRE concentration levels for loans secured by 

real estate for (a) construction, land development, 

and other land loans; (b) multifamily residential 

properties; and (c) nonfarm nonresidential 

properties. 

2The Agencies did receive a number of comment 

letters requesting a 30-day extension of the 

comment period, which the Agencies granted. See 

71 FR 13215 (March 14, 2006). 

DATES: Written comments should be 

received on or before January 11, 2007 

to be assured of consideration. 

Alcohol and Tobacco Tax and Trade 

Bureau (TTB) 

OMB Number: 1513–0107. 

Type of Review: Revision. 

Title: Monthly Report—Tobacco 

Products Importer. 

Form: TTB 5220.6. 

Description: Reports of the 

importation and disposition of tobacco 

products are necessary to determine 

whether those issued the permits 

required by 26 U.S.C. 5713 should be 

allowed to continue their operations or 

renew their permits. This report is used 

to accomplish this goal, which protects 

the revenue. 

Respondents: Business and other for 

profits. 

Estimated Total Burden Hours: 7,258 

hours. 

Clearance Officer: Frank Foote, (202) 

927–9347, Alcohol and Tobacco Tax 

and Trade Bureau, Room 200 East, 1310 

G. Street, NW., Washington, DC 20005. 

OMB Reviewer: Alexander T. Hunt, 

(202) 395–7316, Office of Management 

and Budget, Room 10235, New 

Executive Office Building, Washington, 

DC 20503. 

Michael A. Robinson, 

Treasury PRA Clearance Officer. 

[FR Doc. E6–21112 Filed 12–11–06; 8:45 am] 

BILLING CODE 4810–31–P 

DEPARTMENT OF THE TREASURY 

Office of the Comptroller of the 

Currency 

[Docket No. 06–14] 

FEDERAL RESERVE SYSTEM 

[Docket No. OP–1248] 

FEDERAL DEPOSIT INSURANCE 

CORPORATION 

Concentrations in Commercial Real 

Estate Lending, Sound Risk 

Management Practices 

AGENCIES: Office of the Comptroller of 

the Currency, Treasury (OCC); Board of 

Governors of the Federal Reserve 

System (Board); and Federal Deposit 

Insurance Corporation (FDIC). 

ACTION: Final guidance. 

SUMMARY: The OCC, Board, and FDIC 

(the Agencies) are issuing final joint 

Guidance on Concentrations in 

Commercial Real Estate Lending, Sound 

Risk Management Practices (Guidance). 

This Guidance has been developed to 

reinforce sound risk management 

practices for institutions with high and 

increasing concentrations of commercial 

real estate loans on their balance sheets. 

This Guidance applies to national banks 

and state chartered banks (institutions). 

Further, the Board believes that the 

Guidance is broadly applicable to bank 

holding companies. 

DATES: Effective Date: The final 

Guidance is effective December 12, 

2006. 

FOR FURTHER INFORMATION CONTACT: 

OCC: Dena G. Patel, Credit Risk 

Specialist, (202) 874–5170; or Vance 

Price, National Bank Examiner, (202) 

874–5170. 

Board: Denise Dittrich, Supervisory 

Financial Analyst, (202) 452–2783; 

Virginia Gibbs, Senior Supervisory 

Financial Analyst, (202) 452–2521; or 

Sabeth I. Siddique, Assistant Director, 

(202) 452–3861, Division of Banking 

Supervision and Regulation; or Mark 

Van Der Weide, Senior Counsel, Legal 

Division, (202) 452–2263. For users of 

Telecommunications Device for the Deaf 

(‘‘TDD’’) only, contact (202) 263–4869. 

FDIC: Patricia A. Colohan, Senior 

Examination Specialist, (202) 898–7283; 

or Serena L. Owens, Chief, Planning and 

Program Development, (202) 898–8996, 

Division of Supervision and Consumer 

Protection; or Benjamin W. McDonough, 

Attorney, Legal Division, (202) 898–

7411. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Agencies have observed that 

commercial real estate (CRE) 

concentrations have been rising over the 

past several years and have reached 

levels that could create safety and 

soundness concerns in the event of a 

significant economic downturn. To 

some extent, the level of CRE lending 

reflects changes in the demand for 

credit within certain geographic areas 

and the movement by many financial 

institutions to specialize in a lending 

sector that is perceived to offer 

enhanced earnings. In particular, small 

to mid-size institutions have shown the 

most significant increase in CRE 

concentrations over the last decade. CRE 

concentration levels 1 at commercial and 

savings banks with assets between $100 

million and $1 billion have doubled 

from approximately 156 percent of total 

risk-based capital in 1993 to 318 percent 

in third quarter 2006. This same trend 

has been observed at commercial and 

savings banks with assets of $1 billion 

to $10 billion with concentration levels 

rising from approximately 127 percent 

in 1993 to approximately 300 percent in 

third quarter 2006. 

While current CRE market 

fundamentals remain generally strong, 

and supply and demand are generally in 

balance, past history has demonstrated 

that commercial real estate markets can 

experience fairly rapid changes. For 

institutions with significant 

concentrations, the ability to withstand 

difficult market conditions will depend 

heavily on the adequacy of their risk 

management practices and capital 

levels. In recent examinations, the 

Agencies’ examiners have observed that 

some institutions have relaxed their 

underwriting standards as a result of 

strong competition for business. 

Further, examiners also have identified 

a number of institutions with high CRE 

concentrations that lack appropriate 

policies and procedures to manage the 

associated risk arising from a CRE 

concentration. For these reasons, the 

Agencies are concerned with 

institutions’ CRE concentrations and the 

risks arising from such concentrations. 

To address these concerns, the 

Agencies published for comment 

proposed Interagency Guidance on 

Concentrations in Commercial Real 

Estate Lending, Sound Risk 

Management Practices, 71 FR 2302 

(January 13,2006). The proposal set 

forth thresholds to identify institutions 

with CRE loan concentrations that 

would be subject to greater supervisory 

scrutiny. As provided in the proposal, 

an institution exceeding these 

thresholds would be deemed to have a 

CRE concentration and expected to have 

appropriate risk management practices 

as described in the proposed guidance. 

After reviewing the public comment 

letters 2 on the proposal, the Agencies 

are now issuing final Guidance to 

remind institutions that there are 

substantial risks posed by CRE 

concentrations and that these risks 

should be recognized and appropriately 

addressed. The final Guidance describes 

sound risk management practices that 

are important for an institution that has 

strategically decided to concentrate in 

CRE lending. These risk management 

practices build upon existing real estate 

lending regulations and guidelines. The 

Agencies also have clarified that they 

are not establishing a limit on the 

amount of commercial real estate 

lending that an institution may conduct. 


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In addition, the final Guidance includes 

supervisory criteria to help the 

Agencies’ supervisory staff identify 

institutions that may have significant 

CRE concentration risk. 

II. Proposed Guidance 

The proposed guidance described the 

Agencies’ expectations for heightened 

risk management practices for an 

institution with a concentration in CRE 

loans. Further, the proposal set forth 

two thresholds to identify institutions 

with CRE loan concentrations that 

would be subject to greater supervisory 

scrutiny. The proposal provided that 

such institutions should have in place 

the heightened risk management 

practices and capital levels set forth in 

the proposal. 

The first proposed threshold stated 

that if loans for construction, land 

development, and other land were 100 

percent or more of total capital, the 

institution would be considered to have 

a CRE concentration and should have 

heightened risk management practices. 

Secondly, if loans for construction, land 

development, and other land and loans 

secured by multifamily and nonfarm 

nonresidential property (excluding 

loans secured by owner-occupied 

properties) were 300 percent or more of 

total capital, the institution would also 

be considered to have a CRE 

concentration and should employ 

heightened risk management practices. 

The proposal described the key risk 

management elements for an 

institution’s CRE lending activity with 

an emphasis on those components of the 

risk management process that are 

particularly applicable to an institution 

with a CRE concentration, including: 

board and management oversight, 

strategic planning, underwriting, risk 

assessment and monitoring of CRE 

loans, portfolio risk management, 

management information systems, 

market analysis, and stress testing. The 

proposal also reminded institutions 

with CRE concentrations that they 

should hold capital exceeding 

regulatory minimums and 

commensurate with the level of risk in 

their CRE lending portfolios. 

III. Overview of Public Comments 

Collectively, the Agencies received 

over 4,400 comment letters on the 

proposed guidance. The OCC received 

approximately 1,700 comment letters, 

the Board had approximately 1,700 

letters, and the FDIC had approximately 

1,000 letters. The majority of comment 

letters were from regulated financial 

institutions and their trade groups. 

Among the trade or other groups 

submitting comments were seven 

nationwide banking trade associations, 

26 state banking trade associations, the 

Conference of State Bank Supervisors, 

three state financial institution 

regulatory agencies, the Appraisal 

Institute, the National Association of 

Home Builders, National Association of 

REITs, and Real Estate Roundtable. 

Additionally, during the comment 

period, the Agencies met with several 

industry groups. 

The vast majority of commenters 

expressed strong opposition to the 

proposed guidance and believe that the 

Agencies should address the issue of 

CRE concentration risk on a case-bycase basis as part of the examination 

process. Many commenters contended 

that existing regulations and guidance 

are sufficient to address the Agencies’

concerns regarding CRE concentration 

risk and the adequacy of an institution’s 

risk management practices and capital. 

Several commenters asserted that 

today’s lending environment is 

significantly different than that of the 

late 1980s and early 1990s when 

regulated financial institutions suffered 

losses from their real estate lending 

activities due to weak underwriting 

standards and risk management 

practices. These commenters contended 

that regulated financial institutions 

learned their lessons from past 

economic cycles and that underwriting 

practices are now stronger. 

Many community-based institutions, 

particularly Florida-based and 

Massachusetts-based institutions, 

opposed the proposed guidance and 

contended that the proposal would 

discourage community-based 

institutions from CRE lending and 

serving the needs of their communities. 

If community-based institutions were 

forced to reduce their CRE lending 

activity, these commenters asserted that 

there was the potential for a downturn 

in the economy, creating systemic 

problems beyond the risks in CRE loans. 

While smaller institutions 

acknowledged that many community 

banks do concentrate in commercial real 

estate loans, they contended that there 

are few other lending opportunities in 

which community-based institutions 

can successfully compete against larger 

financial institutions. Community-based 

institutions commented that secured 

real estate lending has been their ‘‘bread 

and butter’’ business and, if required to 

reduce their commercial real estate 

lending activity, they would have to 

look to other types of lending, which 

have been historically more risky. 

Moreover, these commenters noted that 

community-based institutions are 

actively involved in their local 

communities and markets, which 

affords them a significant advantage 

when competing for CRE loan business. 

Community-based institutions also 

noted that their lending opportunities 

have dwindled as a result of 

competition from other types of 

financial institutions, such as finance 

companies, Farm Credit banks, and 

credit unions. 

IV. Overview of Final Guidance 

After carefully reviewing the 

comments on the proposed guidance, 

the Agencies have made significant 

changes to the proposal to clarify the 

purpose and scope of the Guidance. The 

Agencies continue to believe that it is 

important for institutions with CRE 

credit concentrations to assess the risk 

posed by the concentration and to 

maintain sound risk management 

practices and an adequate level of 

capital to address the risk. Therefore, 

while the final Guidance continues to 

emphasize these principles, the 

Agencies have revised the proposal to 

clarify that financial institutions play a 

vital role in providing credit for 

commercial real estate activity and to 

make clear that the Guidance does not 

establish a limit on an institution’s CRE 

lending activity. 

A discussion of the changes in the 

final Guidance from the proposal, major 

comments on the proposal, and the 

Agencies’ responses follows. 

A. Purpose 

The final Guidance reminds 

institutions that sound risk management 

practices and appropriate capital levels 

are important when an institution has a 

CRE concentration. Like the proposal, 

the final Guidance reinforces and builds 

upon the Agencies’ existing regulations 

and guidelines for real estate lending 

and loan portfolio management. 

Commenters expressed concern that 

the proposal placed additional burden 

on institutions that already have sound 

practices in place to manage their CRE 

lending activity. Further, commenters 

contended that the Agencies have 

sufficient existing authority to address 

their concerns with an institution’s CRE 

lending activity and that the Agencies’

examination process affords the 

Agencies with ample opportunity to 

address weaknesses in an institution’s 

lending practices. 

The Agencies are issuing the final 

Guidance to remind institutions of the 

substantial potential risks posed by 

credit concentrations, especially in 

sectors such as CRE, which history has 

shown to have cycles that can, at much 

lower concentration levels, inflict large 

losses upon institutions. While most 

institutions are practicing sound credit 


jlentini on PROD1PC65 with NOTICES
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3Another commenter, representing REITs, sought 

clarification as to whether the proposed guidance 

would apply to both secured and unsecured loans 

to REITs. This commenter asserted that unsecured 

loans to REITs should not be considered a CRE loan 

for purposes of the proposed guidance as the 

commenter believes that the risk of an unsecured 

loan to a REIT is mitigated by well-diversified cash 

flow comprising the sources of repayment. The final 

Guidance, like the proposal, applies to both secured 

and unsecured loans to REITs where repayment 

capacity is sensitive to conditions of the general 

CRE market. The Agencies note that the structure 

of such loans would be considered a mitigating 

factor when an institution analyzes the risk posed 

by such a concentration. 

risk management on a transaction basis, 

the Agencies believe this Guidance is 

necessary to emphasize the importance 

of portfolio risk management practices 

to address CRE concentration risk. 

B. Scope 

The final Guidance, like the proposal, 

focuses on CRE loans that have risk 

profiles sensitive to the condition of the 

general CRE market. This includes loans 

for land development and construction 

(including 1- to 4-family residential and 

commercial properties), other land 

loans, and loans secured by multifamily 

and nonfarm nonresidential properties 

(where the primary source of repayment 

is cash flows from the real estate 

collateral). Loans to REITs and 

unsecured loans to developers also are 

considered CRE loans for purposes of 

this Guidance if their performance is 

closely linked to the performance of the 

general CRE market. 

Commenters noted that the 

identification of CRE loans in the 

current Consolidated Reports of 

Condition and Income (Call Report) did 

not correspond to the proposed 

guidance’s CRE definition and did not 

constitute an accurate measurement of 

the volume of an institution’s CRE loans 

that would be vulnerable to cyclical 

CRE markets. Commenters did 

acknowledge that the revisions to the 

Call Reports, effective in 2007, would 

address this inconsistency. 

In response to these comments, the 

Agencies have clarified that the focus of 

the Guidance is on those CRE loans 

where the cash flow from the real estate 

collateral is the primary source of 

repayment rather than on loans to a 

borrower where real estate is a 

secondary source of repayment or is 

taken as collateral through an 

abundance of caution. This is consistent 

with the 2007 revisions to the Call 

Report. 

Many commenters found the 

proposal’s definition of CRE loans 

overly broad and failed to recognize 

unique risks posed by loans with 

different risk characteristics. Further, 

commenters asked for clarification as to 

the types of properties included in the 

scope of the Guidance, such as loans 

secured by motels, hotels, mini-storage 

warehouse facilities, and apartment 

complexes where the primary source of 

repayment is rental or lease income. A 

number of commenters contended that 

loans on certain types of CRE properties 

should not be considered CRE loans, 

including: Presold 1- to 4-family 

residential construction loans, 

multifamily loans, and loans to REITs. 

Commenters recommended that the 

proposal should not cover residential 

construction loans where a house has 

been sold to a qualified borrower prior 

to the start of the construction. These 

commenters argued that presold 1- to 4- 

family residential construction loans 

carry far less risk than speculative home 

construction loans because the future 

homeowners are known and 

contractually obligated to purchase the 

home, and have passed a credit review 

prior to the commencement of 

construction. Commenters noted that 

their rationale for excluding presold 1- 

to 4-family residential construction is 

consistent with the proposal’s exclusion 

of CRE loans on owner-occupied 

properties. 

Further, commenters recommended 

that multifamily construction loans with 

firm takeouts or loans on completed 

multifamily properties with established 

rent rolls be excluded from the scope of 

the guidance. Commenters contended 

that multifamily residential loans have 

much less risk than CRE loans that have 

no firm takeout or established cash flow 

history.3 One commenter noted that 

over the last 20 years, institutions have 

incurred minimal losses on multifamily 

loans and attributed this performance to 

strong underwriting and stability in 

rental properties. 

The Agencies note that because the 

Guidance does not impose lending 

limits, its scope is purposely broad so 

that it includes those CRE loans, 

including multifamily loans, with risk 

profiles sensitive to the condition of the 

general CRE markets, such as market 

demand, changes in capitalization rates, 

vacancy rates, and rents. However, the 

Agencies believe that institutions are in 

the best position to segment their CRE 

portfolios and group credit exposures by 

common risk characteristics or 

sensitivities to economic, financial, or 

business developments. As explained in 

the final Guidance, institutions should 

be able to identify potential 

concentrations in their CRE portfolios 

by common risk characteristics, which 

will differ by property type. The final 

Guidance notes that factors, such as 

portfolio diversification, geographic 

dispersion, levels of underwriting 

standards, level of presold buildings, 

and portfolio liquidity, would be 

considered in evaluating whether an 

institution has mitigated the risk posed 

by a concentration. Further, the 

Agencies acknowledge in the final 

guidance that consideration should be 

given to the lower risk profiles and 

historically superior performance of 

certain types of CRE such as wellstructured multifamily housing loans, 

when compared to others, such as 

speculative office construction. 

C. CRE Concentration Assessment 

The final Guidance contains a new 

section referred to as ‘‘CRE 

Concentration Assessment’’ that 

provides that institutions should 

perform their own assessment of 

concentration risk in their CRE loan 

portfolios. While the final Guidance 

does not establish a CRE concentration 

limit, the Agencies have retained highlevel indicators to assist examiners in 

identifying institutions potentially 

exposed to CRE concentration risk. 

These are described in section IV.E of 

this preamble. 

Many commenters noted that the 

proposal did not recognize the different 

segments in an institution’s CRE 

portfolio and treated all CRE loans as 

having equal risk. A commenter noted 

that a concentration test cannot reflect 

the distinct risk profile within an 

institution’s loan portfolio and that the 

risk profile is a function of many factors, 

including the institution’s risk 

tolerance, portfolio diversification, the 

prevalence of guarantees and secondary 

collateral, and the condition of the 

regional economy. 

In response to such comments, the 

Agencies have added a section on CRE 

Concentration Assessments to the final 

Guidance. The Agencies recognize that 

risk characteristics vary by different 

property types of CRE loans and that 

institutions are in the best position to 

identify potential concentrations by 

stratifying their CRE portfolios into 

segments with common risk 

characteristics. The Agencies believe an 

institution’s board of directors and 

management should identify and 

monitor credit concentrations and 

establish internal concentration limits. 

The final Guidance clarifies that an 

institution actively involved in CRE 

lending should be able to identify 

concentrations in its CRE portfolio and 

to monitor concentration risk on an 

ongoing basis. 

Commenters raised concern that the 

proposed thresholds would be 

perceived by examiners as de facto 

limits on an institution’s CRE lending 

activity. The Agencies believe that the 


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final Guidance addresses the concerns 

of commenters by placing the emphasis 

on the institution’s own assessment of 

its CRE concentration risk rather than 

on the proposed concentration 

thresholds. In the final Guidance, the 

Agencies have responded to these 

concerns by specifically stating that the 

Guidance does not establish any specific 

limits on institutions’ CRE lending 

activity. Moreover, in implementing the 

Guidance, the Agencies will take the 

necessary steps to communicate the 

purpose of the Guidance to their 

supervisory staffs to prevent any 

unintended consequences. 

The final Guidance does incorporate 

the proposed concentration thresholds 

as part of the Agencies’ supervisory 

oversight criteria for examiners to use as 

a starting point for identifying 

institutions that are potentially exposed 

to significant CRE concentration risk. 

The Agencies believe that these 

numerical supervisory screens will 

serve to promote consistent application 

of this Guidance across the Agencies as 

well as within an agency. The 

supervisory oversight and evaluation of 

an institution’s CRE concentration risk 

are discussed in more detail in section 

IV.E. of the preamble. 

D. Risk Management 

The final Guidance, like the proposal, 

builds upon the Agencies’ existing 

regulations and guidance for real estate 

lending and loan portfolio management, 

emphasizing those risk management 

practices that will enable an institution 

to pursue CRE lending in a safe and 

sound manner. 

Many commenters acknowledged that 

the risk management principles 

described in the proposal should be 

viewed as prudent industry standards 

for an institution engaged in CRE 

lending. However, some commenters 

alleged that the proposed guidance 

would create additional regulatory 

burden at a time when institutions are 

already faced with other compliance 

responsibilities. Further, commenters 

noted that the Agencies needed to 

consider an institution’s size and 

complexity in assessing the adequacy of 

risk management practices. This 

particular concern was raised with 

regard to the expectations for 

management information systems and 

portfolio stress testing that commenters 

found to be burdensome for smaller 

institutions. 

In response to these comments, the 

Agencies have revised the final 

Guidance’s risk management section to 

make the discussion more principlebased and to focus on those aspects of 

existing regulations and guidelines that 

deserve greater attention when an 

institution has a CRE concentration or is 

pursuing a CRE lending strategy leading 

to a concentration. As a result, the risk 

management section in the final 

Guidance sets forth the key elements of 

an institution’s risk management 

framework for managing concentration 

risk. Further, the final Guidance 

recognizes the sophistication of an 

institution’s risk management processes 

will depend upon the size of the CRE 

portfolio and the level and nature of its 

CRE concentration risk. 

The final Guidance describes the key 

elements that an institution should 

address in board and management 

oversight, portfolio management, 

management information systems, 

market analysis, credit underwriting 

standards, portfolio stress testing and 

sensitivity analysis, and credit risk 

review function. In general, an 

institution with a CRE concentration 

should manage not only the risk of the 

individual loans but also the portfolio 

risk. Recognizing that an institution’s 

board of directors has ultimate 

responsibility for the level of risk 

assumed by the institution, the Agencies 

believe that appropriate board oversight 

should address the rationale for an 

institution’s CRE lending levels in 

relation to its growth objectives, 

financial targets, and capital plan. 

The Agencies believe that the final 

Guidance’s discussion of management 

information systems (MIS), market 

analysis, and portfolio stress testing 

addresses the concerns of smaller 

institutions regarding regulatory burden. 

The Agencies recognize that the level of 

sophistication of an institution’s MIS, 

market analysis and stress testing will 

depend upon the size and complexity of 

the institution. Therefore, the focus of 

the final Guidance is on the ability of 

the institution to provide its 

management and board of directors with 

the necessary information to assess its 

CRE lending strategy and policies in 

light of changes in CRE market 

conditions. Regardless of its size, an 

institution should be able to identify 

and monitor CRE concentrations and the 

potential effect that changes in market 

conditions may have on the institution. 

Some commenters requested 

clarification on the Agencies’

expectations for stress testing. These 

commenters expressed concern that, as 

a result of the proposal, management’s 

time would be diverted to creating 

reports and statistics with not much 

value. These commenters represented 

that an institution’s focus should be on 

a loan review program, portfolio 

monitoring procedures, and loan loss 

reserves. 

The Agencies agree with these 

comments and have revised the 

discussion on market analysis and stress 

testing. The final Guidance 

acknowledges that an institution’s 

market analysis will vary by its market 

share and exposure levels as well as the 

availability of market data. Further, the 

final Guidance notes that portfolio stress 

testing does not require the use of 

sophisticated portfolio models. 

Depending on the institution, stress 

testing may be as simple as analyzing 

the potential effect of stressed loss rates 

on the institution’s CRE portfolio, 

capital, and earnings. The important 

objective is that an institution should 

have the information necessary to assess 

the potential effect of market changes on 

its CRE portfolio and lending strategy. 

Commenters questioned the proposed 

guidance’s suggestion that institutions 

should compare their underwriting 

standards to those of the secondary 

commercial mortgage market. 

Commenters noted that there is not a 

ready secondary market for CRE loans 

made by smaller institutions as the 

loans are smaller in dollar size and have 

characteristics that make them 

unsuitable for securitization. 

The Agencies recognize that smaller 

institutions do not have ready access to 

the secondary market and had not 

intended that the proposal be viewed in 

this way. Therefore, in the final 

Guidance, the Agencies have clarified 

the situations when an institution 

should conduct secondary market 

comparisons. If an institution’s portfolio 

management strategy includes selling or 

securitizing CRE loans as a contingency 

plan for managing concentration levels, 

an institution should evaluate its ability 

to do so and compare its underwriting 

standards to those of the secondary 

market. 

E. Supervisory Oversight 

In the final Guidance, the Agencies 

have retained the concept of 

concentration thresholds as a 

supervisory tool for examiners to screen 

institutions for potential CRE 

concentration risk. The intent of these 

indicators is to encourage a dialogue 

between the Agency supervisory staff 

and an institution’s management about 

the level and nature of CRE 

concentration risk. While the final 

Guidance is effective immediately upon 

publication in the Federal Register, the 

Agencies will provide institutions with 

CRE concentrations a reasonable 

timeframe over which to demonstrate 

that their risk management practices are 

appropriate for the level and nature of 

the concentration risk. 


jlentini on PROD1PC65 with NOTICES
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4For commercial banks, this total is reported in 

the Call Report FFIEC 031 and 041 schedule RC–

C item 1a. 

5For purposes of this Guidance, the term ‘‘total 

capital’’ means the total risk-based capital as 

reported for commercial banks in the Call Report 

FFIEC 031 and 041 schedule RC–R—Regulatory 

Capital, line 21. 

6For commercial banks, this total is reported in 

the Call Report FFIEC 031 and 041 schedule RC–

C items 1a, 1d, 1e, and Memorandum Item #3. 

Commenters encouraged the Agencies 

to evaluate institutions’ CRE 

concentrations on a bank-by-bank basis 

and not to take a ‘‘one-size-fits-all’’

approach to evaluating concentrations. 

Commenters asserted that an assessment 

of concentration risk based on the 

Agencies’ proposed thresholds did not 

consider the differing risk 

characteristics of the subcategories of 

CRE loans. Further, commenters noted 

that the proposed thresholds did not 

consider whether or not an institution 

had an established history of managing 

a high CRE concentration. 

In the final Guidance, the Agencies 

addressed the commenters’ concerns by 

stating that numeric indicators do not 

constitute limits; rather they will be 

used as a supervisory monitoring tool. 

These indicators will assist examiners 

in identifying institutions with CRE 

concentrations. These indicators will 

function similarly to other analytical 

screens that the Agencies use to 

evaluate an institution. By including 

these indicators in the final Guidance, 

institutions will have an understanding 

of the Agencies’ supervisory monitoring 

criteria. The Agencies also have tried to 

strike a balanced tone in the final 

Guidance to promote an appropriate and 

consistent application of these 

indicators by their supervisory staffs. 

As explained in the final Guidance, 

an institution that has experienced 

rapid growth in CRE lending, has 

notable exposure to a specific type of 

CRE, or is approaching or exceeds the 

following supervisory criteria may be 

identified for further supervisory 

analysis of the level and nature of its 

CRE concentration risk. The supervisory 

criteria are: 

(1) Total reported loans for 

construction, land development, and 

other land 4 represent 100 percent or 

more of the institution’s total capital; 5

or 

(2) Total commercial real estate loans 

as defined in the Guidance 6 represent 

300 percent or more of the institution’s 

total capital and the outstanding balance 

of the institution’s CRE loan portfolio 

has increased 50 percent or more during 

the prior 36 months. 

While the criteria will serve as a 

screen for identifying institutions with 

potential CRE concentration risk, the 

final Guidance notes that institutions 

should not view the criteria as a ‘‘safe 

harbor’’ if other risk indicators are 

present, regardless of the measurements 

under criteria (1) and (2). Further, the 

final Guidance notes that institutions 

experiencing recent, significant growth 

in CRE lending will receive closer 

supervisory review than other 

institutions that have demonstrated a 

successful track record of managing the 

risks in CRE concentrations. 

In response to comments that the 

proposal concentration thresholds did 

not consider an institution’s track 

record for managing CRE 

concentrations, the Agencies have 

included an additional condition to the 

300 percent screen. The Agencies also 

will consider whether the institution’s 

CRE portfolio increased by 50 percent or 

more during the prior 36 months. This 

additional screen acknowledges that the 

Agencies will be focusing on those 

institutions that have recently 

experienced a significant growth in their 

CRE portfolio and may not have been 

subject to prior supervisory review. 

While most commenters opposed the 

adoption of any concentration 

thresholds, several commenters did 

comment on the appropriateness of the 

proposed CRE concentration thresholds. 

These commenters asserted that the 

proposed 300 percent threshold was too 

low and suggested that a benchmark 

from 400 to 600 percent of capital 

would be more appropriate. 

As previously discussed, the Agencies 

have retained the 300 percent screen 

with an additional screen (that is, an 

institution’s CRE portfolio increased by 

50 percent or more during the prior 36 

months). In developing the supervisory 

criteria, the Agencies relied on 

historical trends in concentration levels 

over real estate cycles, the relationship 

of CRE concentration levels to bank 

failures, and supervisory experience. 

Further, the final Guidance clarifies that 

the Agencies’ supervisory staffs will 

consider other factors, and not just these 

indicators, in evaluating the risk posed 

by an institution’s CRE concentration. 

F. Assessment of Capital Adequacy 

In the final Guidance, the section on 

the ‘‘Assessment of Capital Adequacy’’

was significantly revised to address the 

commenters’ concerns that the proposal 

was too restrictive and did not take into 

account the institution’s lending and 

risk management practices. The 

proposal stated that institutions should 

hold capital commensurate with the 

level and nature of their CRE 

concentration risks and that an 

institution with high or inordinate 

levels of risk would be expected to 

operate well above minimum regulatory 

capital requirements. In the final 

Guidance, the discussion on the 

adequacy of an institution’s capital has 

been incorporated into the Supervisory 

Oversight section to clarify that the 

assessment of an institution’s capital 

will be performed in connection with 

the supervisory assessment of an 

institution’s risk management. 

Commenters asserted that many 

institutions already hold capital at 

levels above minimum standards and 

should not be required to raise 

additional capital simply because their 

CRE concentrations exceeded a 

threshold. There also was concern that 

the proposal would give examiners the 

ability to arbitrarily assess additional 

capital requirements solely due to a 

high concentration. 

The Agencies agree with commenters 

that the majority of institutions with 

CRE concentrations presently have 

capital exceeding regulatory minimums 

and would generally not be expected to 

increase their capital levels. However, 

since an institution’s capital serves as a 

buffer against unexpected losses from its 

CRE concentration, an institution with a 

CRE concentration and inadequate 

capital should develop a plan for 

reducing its concentration or 

maintaining capital appropriate for the 

level and nature of the concentration 

risk. To the extent an institution with a 

CRE concentration has effective risk 

management practices or is addressing 

the need for such practices, the 

Agencies’ concerns regarding capital 

adequacy are reduced. However, an 

institution with a CRE concentration 

and with no prospects of enhancing its 

risk management practices should 

address the need for additional capital. 

Therefore, the final Guidance reminds 

institutions that they should hold 

capital commensurate with the level 

and nature of the risks to which they are 

exposed. 

Commenters noted that the allowance 

for loan and lease losses (ALLL) is 

another means of protection for an 

institution and, therefore, should be 

considered in determining whether 

capital is adequate for the level and 

nature of concentration risk. The 

Agencies agree with this comment and 

have addressed ALLL within the context 

of the capital adequacy section. 

V. Text of the Final Joint Guidance 

The text of the final joint Guidance on 

Concentrations in Commercial Real 

Estate Lending, Sound Risk 

Management Practices follows: 


jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 71, No. 238 / Tuesday, December 12, 2006 / Notices 74585 

1Refer to the Agencies’ regualtions on real estate 

lending standards and the Interagency Guidelines 

for Real Estate Lending Policies: 12 CFR part 34, 

subpart D and appendix A (OCC); 12 CFR part 208, 

subpart E and appendix C (FRB); and 12 CFR part 

365 and appendix A (FDIC). Refer to the 

Interagency Guidelines Establishing Standards for 

Safety and Soundness: 12 CFR part 30, appendix A 

(OCC); 12 CFR part 208, Appendix D–1 (FRB); and 

12 CFR part 364, appendix A (FDIC). 

Concentrations in Commercial Real 

Estate Lending, Sound Risk 

Management Practices 

Purpose 

The Office of the Comptroller of the 

Currency, the Board of Governors of the 

Federal Reserve System, and the Federal 

Deposit Insurance Corporation 

(collectively, the Agencies), are jointly 

issuing this Guidance to address 

institutions’ increased concentrations of 

commercial real estate (CRE) loans. 

Concentrations of credit exposures add 

a dimension of risk that compounds the 

risk inherent in individual loans. 

The Guidance reminds institutions 

that strong risk management practices 

and appropriate levels of capital are 

important elements of a sound CRE 

lending program, particularly when an 

institution has a concentration in CRE 

loans. The Guidance reinforces and 

enhances the Agencies’ existing 

regulations and guidelines for real estate 

lending 1 and loan portfolio 

management in light of material changes 

in institutions’ lending activities. The 

Guidance does not establish specific 

CRE lending limits; rather, it promotes 

sound risk management practices and 

appropriate levels of capital that will 

enable institutions to continue to pursue 

CRE lending in a safe and sound 

manner. 

Background 

The Agencies recognize that regulated 

financial institutions play a vital role in 

providing credit for business and real 

estate development. However, 

concentrations in CRE lending coupled 

with weak loan underwriting and 

depressed CRE markets have 

contributed to significant credit losses 

in the past. While underwriting 

standards are generally stronger than 

during previous CRE cycles, the 

Agencies have observed an increasing 

trend in the number of institutions with 

concentrations in CRE loans. These 

concentrations may make such 

institutions more vulnerable to cyclical 

CRE markets. Moreover, the Agencies 

have observed that some institutions’

risk management practices are not 

evolving with their increasing CRE 

concentrations. Therefore, institutions 

with concentrations in CRE loans are 

reminded that their risk management 

practices and capital levels should be 

commensurate with the level and nature 

of their CRE concentration risk. 

Scope 

In developing this guidance, the 

Agencies recognized that different types 

of CRE lending present different levels 

of risk, and that consideration should be 

given to the lower risk profiles and 

historically superior performance of 

certain types of CRE, such as wellstructured multifamily housing finance, 

when compared to others, such as 

speculative office space construction. 

As discussed under ‘‘CRE Concentration 

Assessments,’’ institutions are 

encouraged to segment their CRE 

portfolios to acknowledge these 

distinctions for risk management 

purposes. 

This Guidance focuses on those CRE 

loans for which the cash flow from the 

real estate is the primary source of 

repayment rather than loans to a 

borrower for which real estate collateral 

is taken as a secondary source of 

repayment or through an abundance of 

caution. Thus, for the purposes of this 

Guidance, CRE loans include those 

loans with risk profiles sensitive to the 

condition of the general CRE market (for 

example, market demand, changes in 

capitalization rates, vacancy rates, or 

rents). CRE loans are land development 

and construction loans (including 1 - to 

4-family residential and commercial 

construction loans) and other land 

loans. 

CRE loans also include loans secured 

by multifamily property, and nonfarm 

nonresidential property where the 

primary source of repayment is derived 

from rental income associated with the 

property (that is, loans for which 50 

percent or more of the source of 

repayment comes from third party, 

nonaffiliated, rental income) or the 

proceeds of the sale, refinancing, or 

permanent financing of the property. 

Loans to real estate investment trusts 

(REITs) and unsecured loans to 

developers also should be considered 

CRE loans for purposes of this Guidance 

if their performance is closely linked to 

performance of the CRE markets. 

Excluded from the scope of this 

Guidance are loans secured by nonfarm 

nonresidential properties where the 

primary source of repayment is the cash 

flow from the ongoing operations and 

activities conducted by the party, or 

affiliate of the party, who owns the 

property. 

Although the Guidance does not 

define a CRE concentration, the 

‘‘Supervisory Oversight’’ section 

describes the criteria that the Agencies 

will use as high-level indicators to 

identify institutions potentially exposed 

to CRE concentration risk. 

CRE Concentration Assessments 

Institutions actively involved in CRE 

lending should perform ongoing risk 

assessments to identify CRE 

concentrations. The risk assessment 

should identify potential concentrations 

by stratifying the CRE portfolio into 

segments that have common risk 

characteristics or sensitivities to 

economic, financial or business 

developments. An institution’s CRE 

portfolio stratification should be 

reasonable and supportable. The CRE 

portfolio should not be divided into 

multiple segments simply to avoid the 

appearance of concentration risk. 

The Agencies recognize that risk 

characteristics vary among CRE loans 

secured by different property types. A 

manageable level of CRE concentration 

risk will vary by institution depending 

on the portfolio risk characteristics, the 

quality of risk management processes, 

and capital levels. Therefore, the 

Guidance does not establish a CRE 

concentration limit that applies to all 

institutions. Rather, the Guidance 

encourages institutions to identify and 

monitor credit concentrations, establish 

internal concentration limits, and report 

all concentrations to management and 

the board of directors on a periodic 

basis. Depending on the results of the 

risk assessment, the institution may 

need to enhance its risk management 

systems. 

Risk Management 

The sophistication of an institution’s 

CRE risk management processes should 

be appropriate to the size of the 

portfolio, as well as the level and nature 

of concentrations and the associated risk 

to the institution. Institutions should 

address the following key elements in 

establishing a risk management 

framework that effectively identifies, 

monitors, and controls CRE 

concentration risk: 

• Board and management oversight. 

• Portfolio management. 

• Management information systems. 

• Market analysis. 

• Credit underwriting standards. 

• Portfolio stress testing and 

sensitivity analysis. 

• Credit risk review function. 

Board and Management Oversight. An 

institution’s board of directors has 

ultimate responsibility for the level of 

risk assumed by the institution. If the 

institution has significant CRE 

concentration risk, its strategic plan 

should address the rationale for its CRE 

levels in relation to its overall growth 

objectives, financial targets, and capital 


jlentini on PROD1PC65 with NOTICES
74586 Federal Register / Vol. 71, No. 238 / Tuesday, December 12, 2006 / Notices 

2Refer to the Agencies’ appraisal regualtins: 12 

CFR part 34, subpart C (OCC); 12 CFR part 208 

subpart E and 12 CFR part 225, subpart G (FRB); 

and 12 CFR part 323 (FDIC). 

plan. In addition, the Agencies’ real 

estate lending regulations require that 

each institution adopt and maintain a 

written policy that establishes 

appropriate limits and standards for all 

extensions of credit that are secured by 

liens on or interests in real estate, 

including CRE loans. Therefore, the 

board of directors or a designated 

committee thereof should: 

• Establish policy guidelines and 

approve an overall CRE lending strategy 

regarding the level and nature of CRE 

exposures acceptable to the institution, 

including any specific commitments to 

particular borrowers or property types, 

such as multifamily housing. 

• Ensure that management 

implements procedures and controls to 

effectively adhere to and monitor 

compliance with the institution’s 

lending policies and strategies. 

• Review information that identifies 

and quantifies the nature and level of 

risk presented by CRE concentrations, 

including reports that describe changes 

in CRE market conditions in which the 

institution lends. 

• Periodically review and approve 

CRE risk exposure limits and 

appropriate sublimits (for example, by 

nature of concentration) to conform to 

any changes in the institution’s 

strategies and to respond to changes in 

market conditions. 

Portfolio Management. Institutions 

with CRE concentrations should manage 

not only the risk of individual loans but 

also portfolio risk. Even when 

individual CRE loans are prudently 

underwritten, concentrations of loans 

that are similarly affected by cyclical 

changes in the CRE market can expose 

an institution to an unacceptable level 

of risk if not properly managed. 

Management regularly should evaluate 

the degree of correlation between 

related real estate sectors and establish 

internal lending guidelines and 

concentration limits that control the 

institution’s overall risk exposure. 

Management should develop 

appropriate strategies for managing CRE 

concentration levels, including a 

contingency plan to reduce or mitigate 

concentrations in the event of adverse 

CRE market conditions. Loan 

participations, whole loan sales, and 

securitizations are a few examples of 

strategies for actively managing 

concentration levels without curtailing 

new originations. If the contingency 

plan includes selling or securitizing 

CRE loans, management should assess 

periodically the marketability of the 

portfolio. This should include an 

evaluation of the institution’s ability to 

access the secondary market and a 

comparison of its underwriting 

standards with those that exist in the 

secondary market. 

Management Information Systems. A 

strong management information system 

(MIS) is key to effective portfolio 

management. The sophistication of MIS 

will necessarily vary with the size and 

complexity of the CRE portfolio and 

level and nature of concentration risk. 

MIS should provide management with 

sufficient information to identify, 

measure, monitor, and manage CRE 

concentration risk. This includes 

meaningful information on CRE 

portfolio characteristics that is relevant 

to the institution’s lending strategy, 

underwriting standards, and risk 

tolerances. An institution should assess 

periodically the adequacy of MIS in 

light of growth in CRE loans and 

changes in the CRE portfolio’s size, risk 

profile, and complexity. 

Institutions are encouraged to stratify 

the CRE portfolio by property type, 

geographic market, tenant 

concentrations, tenant industries, 

developer concentrations, and risk 

rating. Other useful stratifications may 

include loan structure (for example, 

fixed rate or adjustable), loan purpose 

(for example, construction, short-term, 

or permanent), loan-to-value limits, debt 

service coverage, policy exceptions on 

newly underwritten credit facilities, and 

affiliated loans (for example, loans to 

tenants). An institution should also be 

able to identify and aggregate exposures 

to a borrower, including its credit 

exposure relating to derivatives. 

Management reporting should be 

timely and in a format that clearly 

indicates changes in the portfolio’s risk 

profile, including risk-rating migrations. 

In addition, management reporting 

should include a well-defined process 

through which management reviews 

and evaluates concentration and risk 

management reports, as well as special 

ad hoc analyses in response to potential 

market events that could affect the CRE 

loan portfolio. 

Market Analysis. Market analysis 

should provide the institution’s 

management and board of directors with 

information to assess whether its CRE 

lending strategy and policies continue 

to be appropriate in light of changes in 

CRE market conditions. An institution 

should perform periodic market 

analyses for the various property types 

and geographic markets represented in 

its portfolio. 

Market analysis is particularly 

important as an institution considers 

decisions about entering new markets, 

pursuing new lending activities, or 

expanding in existing markets. Market 

information also may be useful for 

developing sensitivity analysis or stress 

tests to assess portfolio risk. 

Sources of market information may 

include published research data, real 

estate appraisers and agents, 

information maintained by the property 

taxing authority, local contractors, 

builders, investors, and community 

development groups. The sophistication 

of an institution’s analysis will vary by 

its market share and exposure, as well 

as the availability of market data. While 

an institution operating in 

nonmetropolitan markets may have 

access to fewer sources of detailed 

market data than an institution 

operating in large, metropolitan 

markets, an institution should be able to 

demonstrate that it has an 

understanding of the economic and 

business factors influencing its lending 

markets. 

Credit Underwriting Standards. An 

institution’s lending policies should 

reflect the level of risk that is acceptable 

to its board of directors and should 

provide clear and measurable 

underwriting standards that enable the 

institution’s lending staff to evaluate all 

relevant credit factors. When an 

institution has a CRE concentration, the 

establishment of sound lending policies 

becomes even more critical. In 

establishing its policies, an institution 

should consider both internal and 

external factors, such as its market 

position, historical experience, present 

and prospective trade area, probable 

future loan and funding trends, staff 

capabilities, and technology resources. 

Consistent with the Agencies’ real estate 

lending guidelines, CRE lending 

policies should address the following 

underwriting standards: 

• Maximum loan amount by type of 

property. 

• Loan terms. 

• Pricing structures. 

• Collateral valuation.2

• Loan-to-Value (LTV) limits by 

property type. 

• Requirements for feasibility studies 

and sensitivity analysis or stress testing. 

• Minimum requirements for initial 

investment and maintenance of hard 

equity by the borrower. 

• Minimum standards for borrower 

net worth, property cash flow, and debt 

service coverage for the property. 

An institution’s lending policies 

should permit exceptions to 

underwriting standards only on a 

limited basis. When an institution does 

permit an exception, it should 


jlentini on PROD1PC65 with NOTICES
Federal Register / Vol. 71, No. 238 / Tuesday, December 12, 2006 / Notices 74587 

3The Interagency Guidelines for Real Estate 

Lending state that loans exceeding the supervisory 

LTV guidelines should be recorded in the 

institution’s records and reported to the board at 

least quarterly. 

4For commercial banks as reported in the Call 

Report FFIEC 031 and 041, schdule RC–C, item la. 5For purposes of this Guidance, the term ‘‘total 

capital’’ means the total risk-based capital as 

reported fro commercial banks in the Call Report 

FFIEC 031 and 041 schedule RC–R—Regulatory 

Capital, line 21. 

6For commercial banks as reported in the Call 

Report FFIEC 031 and 041 schedule RC–C, items 1a, 

1d, 1e, and Memorandum Item #3. 

document how the transaction does not 

conform to the institution’s policy or 

underwriting standards, obtain 

appropriate management approvals, and 

provide reports to the board of directors 

or designated committee detailing the 

number, nature, justifications, and 

trends for exceptions. Exceptions to 

both the institution’s internal lending 

standards and the Agencies’ supervisory 

LTV limits 3 should be monitored and 

reported on a regular basis. Further, 

institutions should analyze trends in 

exceptions to ensure that risk remains 

within the institution’s established risk 

tolerance limits. 

Credit analysis should reflect both the 

borrower’s overall creditworthiness and 

project-specific considerations as 

appropriate. In addition, for 

development and construction loans, 

the institution should have policies and 

procedures governing loan 

disbursements to ensure that the 

institution’s minimum borrower equity 

requirements are maintained throughout 

the development and construction 

periods. Prudent controls should 

include an inspection process, 

documentation on construction 

progress, tracking pre-sold units, preleasing activity, and exception 

monitoring and reporting. 

Portfolio Stress Testing and 

Sensitivity Analysis. An institution with 

CRE concentrations should perform 

portfolio-level stress tests or sensitivity 

analysis to quantify the impact of 

changing economic conditions on asset 

quality, earnings, and capital. Further, 

an institution should consider the 

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 

size, complexity, 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 self-assessment of 

emerging risks. An effective, accurate, 

and timely risk-rating 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 be 

risk sensitive, objective, and appropriate 

for the types of CRE loans underwritten 

by the institution. Further, risk ratings 

should be reviewed regularly for 

appropriateness. 

Supervisory Oversight 

As part of their ongoing supervisory 

monitoring processes, the Agencies will 

use certain criteria to identify 

institutions that are potentially exposed 

to significant CRE concentration risk. 

An institution that has experienced 

rapid growth in CRE lending, has 

notable exposure to a specific type of 

CRE, or is approaching or exceeds the 

following supervisory criteria may be 

identified for further supervisory 

analysis of the level and nature of its 

CRE concentration risk: 

(1) Total reported loans for 

construction, land development, and 

other land 4 represent 100 percent or 

more of the institution’s total capital;5

or 

(2) Total commercial real estate loans 

as defined in this Guidance 6 represent 

300 percent or more of the institution’s 

total capital, and the outstanding 

balance of the institution’s commercial 

real estate loan portfolio has increased 

by 50 percent or more during the prior 

36 months. 

The Agencies will use the criteria as 

a preliminary step to identify 

institutions that may have CRE 

concentration risk. Because regulatory 

reports capture a broad range of CRE 

loans with varying risk characteristics, 

the supervisory monitoring criteria do 

not constitute limits on an institution’s 

lending activity but rather serve as highlevel indicators to identify institutions 

potentially exposed to CRE 

concentration risk. Nor do the criteria 

constitute a ‘‘safe harbor’’ for 

institutions if other risk indicators are 

present, regardless of their 

measurements under (1) and (2). 

Evaluation of CRE Concentrations. 

The effectiveness of an institution’s risk 

management practices will be a key 

component of the supervisory 

evaluation of the institution’s CRE 

concentrations. Examiners will engage 

in a dialogue with the institution’s 

management to assess CRE exposure 

levels and risk management practices. 

Institutions 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 CRE concentrations, the 

Agencies will consider the institution’s 

own analysis of its CRE portfolio, 

including consideration of factors such 

as: 

• Portfolio diversification across 

property types. 

• Geographic dispersion of CRE 

loans. 

• 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). 

While consideration of these factors 

should not change the method of 

identifying a credit concentration, these 

factors may mitigate the risk posed by 

the concentration. 

Assessment of Capital Adequacy. The 

Agencies’ 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, 

institutions with CRE concentrations are 

reminded that their capital levels 

should be commensurate with the risk 

profile of their CRE portfolios. In 

assessing the adequacy of an 

institution’s capital, the Agencies 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, market 

conditions, and any loan loss reserves 

allocated for CRE concentration risk. 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 to the level and 

nature of its CRE concentration risk. 


jlentini on PROD1PC65 with NOTICES
74588 Federal Register / Vol. 71, No. 238 / Tuesday, December 12, 2006 / Notices 

Dated: December 5, 2006. 

John C. Dugan, 

Comptroller of the Currency. 

By order of the Board of Governors of the 

Federal Reserve System, December 6, 2006. 

Jennifer J. Johnson, 

Secretary of the Board. 

Dated at Washington, DC, this 6th day of 

December 2006. 

By order of the Federal Deposit Insurance 

Corporation. 

Robert E. Feldman, 

Executive Secretary. 

[FR Doc. 06–9630 Filed 12–11–06; 8:45 am] 

BILLING CODE 4810–33–P, 6210–01–P, 6714–01–P 

DEPARTMENT OF THE TREASURY 

Fiscal Service 

Financial Management Service; 

Proposed Collection of Information: 

Claim Against the United States for the 

Proceeds of a Government Check 

AGENCY: Financial Management Service, 

Fiscal Service, Treasury. 

ACTION: Notice and request for 

comments. 

SUMMARY: The Financial Management 

Service, as part of its continuing effort 

to reduce paperwork and respondent 

burden, invites the general public and 

other Federal agencies to take this 

opportunity to comment on a 

continuing information collection. By 

this notice, the Financial Management 

Service solicits comments concerning 

the Form FMS–1133 ‘‘Claim Against the 

United States for the Proceeds of a 

Government Check.’’

DATES: Written comments should be 

received on or before February 12, 2007. 

ADDRESSES: Direct all written comments 

to Financial Management Service, 

Records and Information Management 

Branch, Room 135, 3700 East West 

Highway, Hyattsville, Maryland 20782. 

FOR FURTHER INFORMATION CONTACT: 

Requests for additional information or 

copies of the form(s) and instructions 

should be directed to Dawn Johns, 

Manager, Check Claims Branch, Room 

800D, 3700 East West Highway, 

Hyattsville, MD 20782, (202) 874–8445. 

SUPPLEMENTARY INFORMATION: Pursuant 

to the Paperwork Reduction Act of 1995 

(44 U.S.C. 3506(c)(2)(A)), the Financial 

Management Service solicits comments 

on the collection of information 

described below: 

Title: Claim Against the United States 

for the Proceeds of a Government Check. 

OMB Number: 1510–0019. 

Form Number: FMS–1133. 

Abstract: This form is used to collect 

information needed to process an 

individual’s claim for non-receipt of 

proceeds from a government check. 

Once the information is analyzed, a 

determination is made and a 

recommendation is submitted to the 

program agency to either settle or deny 

the claim. 

Current Actions: Extension of 

currently approved collection. 

Type of Review: Regular. 

Affected Public: Individuals or 

households. 

Estimated Number of Respondents: 

53,000. 

Estimated Time per Respondent: 10 

minutes. 

Estimated Total Annual Burden 

Hours: 8,834. 

Comments: Comments submitted in 

response to this notice will be 

summarized and/or included in the 

request for Office of Management and 

Budget approval. All comments will 

become a matter of public record. 

Comments are invited on: (a) Whether 

the collection of information is 

necessary for the proper performance of 

the functions of the agency, including 

whether the information shall have 

practical utility; (b) the accuracy of the 

agency’s estimate of the burden of the 

collection of information; (c) ways to 

enhance the quality, utility, and clarity 

of the information to be collected; (d) 

ways to minimize the burden of the 

collection of information on 

respondents, including through the use 

of automated collection techniques or 

other forms of information technology; 

and (e) estimates of capital or start-up 

costs and costs of operation, 

maintenance and purchase of services to 

provide information. 

Dated: December 1, 2006. 

Janice Lucas, 

Assistant Commissioner, Financial 

Operations. 

[FR Doc. 06–9639 Filed 12–11–06; 8:45 am] 

BILLING CODE 4810–35–M 

DEPARTMENT OF THE TREASURY 

Office of Foreign Assets Control 

Additional Designation of Individuals 

Pursuant to Executive Order 13224 

AGENCY: Office of Foreign Assets 

Control, Treasury. 

ACTION: Notice. 

SUMMARY: The Treasury Department’s 

Office of Foreign Assets Control 

(‘‘OFAC’’) is publishing the names of 

nine newly-designated individuals and 

two newly-designated entities whose 

property and interests in property are 

blocked pursuant to Executive Order 

13224 of September 23, 2001, ‘‘Blocking 

Property and Prohibiting Transactions 

With Persons Who Commit, Threaten To 

Commit, or Support Terrorism.’’

DATES: The designation by the Secretary 

of the Treasury of nine individuals and 

two entities identified in this notice, 

pursuant to Executive Order 13224, is 

effective on December 6, 2006. 

FOR FURTHER INFORMATION CONTACT: 

Assistant Director, Compliance 

Outreach & Implementation, Office of 

Foreign Assets Control, Department of 

the Treasury, Washington, DC 20220, 

tel.: 202/622–2490. 

SUPPLEMENTARY INFORMATION: 

Electronic and Facsimile Availability 

This document and additional 

information concerning OFAC are 

available from OFAC’s Web site 

(http://www.treas.gov/ofac) or via 

facsimile through a 24-hour fax-ondemand service, tel.: 202/622–0077. 

Background 

On September 23, 2001, the President 

issued Executive Order 13224 (the 

‘‘Order’’) pursuant to the International 

Emergency Economic Powers Act, 50 

U.S.C. 1701–1706, and the United 

Nations Participation Act of 1945, 22 

U.S.C. 287c. In the Order, the President 

declared a national emergency to 

address grave acts of terrorism and 

threats of terrorism committed by 

foreign terrorists, including the 

September 11, 2001, terrorist attacks in 

New York, Pennsylvania, and at the 

Pentagon. The Order imposes economic 

sanctions on persons who have 

committed, pose a significant risk of 

committing, or support acts of terrorism. 

The President identified in the Annex to 

the Order, as amended by Executive 

Order 13268 of July 2, 2002, 13 

individuals and 16 entities as subject to 

the economic sanctions. The Order was 

further amended by Executive Order 

13284 of January 23, 2003, to reflect the 

creation of the Department of Homeland 

Security. 

Section 1 of the Order blocks, with 

certain exceptions, all property and 

interests in property that are in or 

hereafter come within the United States 

or the possession or control of United 

States persons, of: (1) Foreign persons 

listed in the Annex to the Order; (2) 

foreign persons determined by the 

Secretary of State, in consultation with 

the Secretary of the Treasury, the 

Secretary of the Department of 

Homeland Security and the Attorney 

General, to have committed, or to pose 

a significant risk of committing, acts of 

terrorism that threaten the security of 

U.S. nationals or the national security, 


jlentini on PROD1PC65 with NOTICES