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Federal Register / Vol. 71, No.

9 / Friday, January 13, 2006 / Notices 2307

In managing CRE concentration Allowance for Loan Losses. potential uncertainties in risk
levels, institutions are also encouraged Institutions also should consider CRE measurement.
to consider other credit exposures concentrations in their assessment of In assessing the adequacy of an
correlated to the CRE market such as the adequacy of the allowance for loan institution’s capital, the Agencies will
commercial mortgage-backed securities. and lease losses. The Interagency Policy take into account analysis provided by
Market Analysis. Institutions should Statement on Allowance for Loan and the institution as well as an evaluation
perform ongoing evaluations of the Lease Losses Methodologies and of the level of inherent risk in the CRE
market conditions for the various Documentation for Banks and Savings portfolio and the quality of risk
property types and geographic areas or Institutions provides guidance on management based on the sound
markets represented in their portfolio. criteria that institutions should consider practices set forth in this Guidance.
Market analysis is particularly when evaluating groups of loans with
Supervisory Evaluation and Action
important as an institution expands its common risk characteristics.
geographic scope of operations into new The CRE sound practices set forth in
Capital Adequacy this Guidance are effective methods for
markets. In making decisions about new
markets and new originations, market The Agencies’ capital adequacy addressing the increased risks
analysis should be an important guidelines note that institutions should associated with CRE concentrations, and
evaluation criterion for individual hold capital commensurate with the illustrate the types of practices that the
credits as well as for the portfolio. level and nature of the risks to which Agencies consider important elements
Institutions should utilize multiple they are exposed and that institutions of sound risk management and adequate
sources for obtaining market with high or inordinate levels of risk are capital. An institution that is unable to
information such as published research expected to operate well above adequately assess and meet its capital
data, monitoring new building permits, minimum regulatory capital needs may be required to develop a plan
and maintaining contacts with local requirements. Minimum levels of for reducing its concentrations or for
contractors, builders, real estate agents, regulatory capital 7 do not provide achieving higher capital ratios.
and community development groups. institutions with sufficient buffer to This concludes the text of the
Management should ensure that the absorb unexpected losses arising from proposed Guidance entitled,
institution’s CRE lending strategy and loan concentrations.8 Failure to Concentrations in Commercial Real
portfolio risk assessments integrate the maintain an appropriate cushion for Estate Lending, Sound Risk
findings of its market analysis and concentrations is inconsistent with the Management Practices.
evaluation. Moreover, market Agencies’ capital adequacy guidelines. Dated: January 6, 2006.
information should provide Moreover, an institution with a CRE John C. Dugan,
management with sufficient information concentration should recognize the need
Comptroller of the Currency.
to determine whether revisions to its for additional capital support for CRE
CRE lending strategy and policies are concentrations in its strategic, financial, By order of the Board of Governors of the
and capital planning, including an Federal Reserve System, January 10, 2006.
necessary to respond to identified
market trends, and to form the basis for assessment of the potential for future Jennifer J. Johnson,
its stress testing. losses on CRE exposures. Secretary of the Board.
Portfolio Stress Testing. Institutions In performing its internal capital Dated at Washington, DC, this 9th day of
should consider performing portfolio analysis, an institution should make use January, 2006.
level stress tests of their CRE exposures of the results of any stress testing and By order of the Federal Deposit Insurance
to quantify the impact of changing other quantitative and qualitative Corporation.
economic scenarios on asset quality, analysis. The internal capital analysis Robert E. Feldman,
earnings, and capital. The Agencies should also reflect the possibility that Executive Secretary.
recognize that portfolio level stress any historical correlations used might
not remain stable under stress Dated: January 9, 2006.
testing is an evolving process and
conditions. For larger, more complex By the Office of Thrift Supervision.
encourage institutions to consider its
institutions that employ formal John M. Reich,
use as a risk management tool and to
review periodically the adequacy of quantitative economic capital systems, Director.
stress testing practices relative to their the analysis of concentrations should [FR Doc. 06–340 Filed 1–12–06; 8:45 am]
CRE exposures. The sophistication of provide for an adequate ‘‘cushion’’ BILLING CODE 4810–33–U; 6210–01–U; 6714–01–U;
stress testing practices should be above model outputs to compensate for 6720–01–U

consistent with the size and complexity


7 Most CRE exposures are risk-weighted at 100
of the institution’s CRE loan portfolio.
Portfolio stress testing does not
percent. By statute, however, certain loans made for DEPARTMENT OF VETERANS
the construction of single-family housing and AFFAIRS
necessarily require the use of a certain multifamily housing loans are risk-weighted
sophisticated portfolio model. at 50 percent. See 12 U.S.C. 1831n note (Risk-
Health Services Research and
Depending on the risk characteristics of Weighting of Housing Loans for Purposes of Capital
Requirements). The Agencies have codified these Development Service Scientific Merit
the CRE portfolio, it may be appropriate statutory risk-weighting requirements in their Review Board; Notice of Meeting
for a stress test to be as simple as an regulations at 12 CFR Part 3, Appendix A, Section
aggregation of the results of individual 3 (OCC); 12 CFR Part 208, Appendix A, Section III. The Department of Veterans Affairs
loan stress tests, testing the impact of C. (FRB); 12 CFR Part 325, Appendix A, Section (VA) gives notice under Public Law 92–
II.C. (FDIC); and 12 CFR 567.6(a)(1)(iii) (50% risk-
ratings migration, or applying stressed weights for ‘‘qualifying multifamily mortgage loan’’ 463, Federal Advisory Committee Act,
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historical loss rates to the portfolio. and ‘‘qualifying residential construction loan’’ as that a meeting of the Health Services
Stress tests should focus on the more defined in 12 CFR 567.1) (OTS). Research and Development Service
8 Depending upon the level and nature of the CRE
vulnerable segments of an institution’s Scientific Merit Review Board will be
concentration, an institution may need to maintain
CRE portfolio, given the prevailing capital at levels exceeding the ‘‘well capitalized’’
held March 7–9, 2006, at the Crowne
market environment and the standard to ensure the overall sound financial Plaza Hotel (Atlanta-Ravinia), 4355
institution’s business strategy. condition of the institution. Ashford Dunwoody Road, Atlanta,

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2308 Federal Register / Vol. 71, No. 9 / Friday, January 13, 2006 / Notices

Georgia. Each subcommittee meeting of recommendations will include The purpose of the Committee is to
the Merit Review Board will be open to qualifications of the personnel advise the Secretary of Veterans Affairs
the public the first day convened for conducting the studies (the disclosure of with an ongoing assessment of the
approximately one half-hour from 8 a.m. which would constitute a clearly effectiveness of the policies,
until 8:30 a.m. to cover administrative unwarranted invasion of personal organizational structures, and services
matters and to discuss the general status privacy), as well as research information of the Department in assisting homeless
of the program. The remaining portion (the premature disclosure of which veterans. The Committee shall assemble
of each meeting will be closed. The would be likely to compromise and review information relating to the
closed portion of the meeting will significantly the implementation of needs of homeless veterans and provide
involve discussion, examination, proposed agency action regarding such ongoing advice on the most appropriate
reference to, and oral review of the research projects). As provided by means of providing assistance to
research proposals and critiques. subsection 10(d) of Public Law 92–463, homeless veterans. The Committee will
On Tuesday, March 7, 2006, an as amended by Public Law 94–409, make recommendations to the Secretary
orientation session will be held from 7 closing portions of these meetings is in regarding such activities.
p.m. to 9 p.m. On Wednesday, March 8, accordance with 5 U.S.C. 552b(c)(6) and On February 8 and 9, the Committee
2006, five subcommittees will convene (9)(B). will receive reports from program
from 8 a.m. to 5 p.m.—Implementation experts, assess the availability of health
and Management Research Science, Those who plan to attend the open
session should contact the Scientific care and benefit services, receive reports
Chronic Disease Management, General from other federal departments and
Health Services Research, Special Merit Review Program Manager (124R),
Health Services Research and advocacy groups and review other
Populations and the Nursing Research initiatives designed to assist veterans
Initiative (NRI). On Thursday, March 9, Development Service, Department of
Veterans Affairs, 1722 Eye Street, NW., who are homeless. On February 10, the
2006, five subcommittees will convene Committee will review the 2005 annual
from 8 a.m. to 5 p.m.—Implementation Washington, DC, 20006 at least five days
before the meeting. For further report responses, review future issues
and Management Research Science for consideration at its next meeting and
(continuation), Special Populations information, call (202) 205–0207.
prepare to develop its 2006 annual
(continuation), General Health Services By Direction of the Secretary. report.
Research (continuation), Chronic Dated: January 6, 2006. Those wishing to attend the meeting
Disease Management (continuation) and E. Philip Riggin, should contact Mr. Pete Dougherty,
Equity/Women’s Health review group.
The purpose of the Board is to review Committee Management Officer. Designated Federal Officer, at (202)
research and development applications [FR Doc. 06–293 Filed 1–12–06; 8:45 am] 273–5764. No time will be allocated for
concerned with the measurement and BILLING CODE 8320–01–M
receiving oral presentations during the
evaluation of health care services, the public meeting. However, the
testing of new methods of health care Committee will accept written
delivery and management, and nursing DEPARTMENT OF VETERANS comments from interested parties or
research. Applications are reviewed for AFFAIRS issues affecting homeless veterans. Such
scientific and technical merit. comments should be referred to the
Recommendations regarding funding are Advisory Committee on Homeless Committee at the following address:
prepared for the Chief Research and Veterans, Notice of Meeting Advisory Committee on Homeless
Development Officer. Veterans, Homeless Veterans
After the subcommittees meet there The Department of Veterans Affairs Programs Office (075D), U.S.
will be a debriefing provided to (VA) gives notice under Public Law 92– Department of Veterans Affairs, 810
members of Health Services Research & 463 (Federal Advisory Committee Act) Vermont Avenue, NW., Washington,
Development Service Scientific Merit that a meeting of the Advisory DC 20420.
Review Board. This debriefing, by Committee on Homeless Veterans will
Dated: September 9, 2005.
teleconference, will be held to discuss be held February 8–10, 1006. The
Committee will meet at 8 a.m. to 4:30 By Direction of the Secretary.
the outcomes of the review sessions and
to ensure the integrity and consistency p.m. each day in the Oasis Room at the E. Philip Riggin,
of the review process. Hamilton Crowne Plaza Hotel, 1001 Committee Management Officer.
During the closed portion of the 14th Street, NW., Washington, DC. The [FR Doc. 06–294 Filed 1–12–06; 8:45 am]
meeting, discussion and meeting is open to the public. BILLING CODE 8320–01–M
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