Taylor Lectures Lenders on Real Estate
WASHINGTON - In his first public speech as chairman of the Federal Deposit Insurance Corp., William Taylor gave thrift executives a lecture Tuesday on underwriting real estate loans.
Addressing the convention of the U.S. League of Savings Institutions, Mr. Taylor said lenders should value commercial real estate according to its capacity to provide a return on the capital invested.
Mr. Taylor, who moved to the FDIC last Friday from a Federal Reserve regulatory post, acknowledged that his views on underwriting commercial real estate loans are "old-fashioned." But he said lenders should not value the loans on their books higher than what the market will support.
Discounting for Vacancies
"If the property is fighting a pretty vacancy market, then it is the vacancy that has to be calculated in deciding what kind of reserve or what kind of discount should be placed on that value," he said.
Referring to his following L. William Seidman in the FDIC post at a time of crisis for the Bank Insurance Fund, he said, "When everyone is in favor of your stepping on the ship, you wonder where the ship is going."
Mr. Taylor added, "I know where the facilities are, I am plugged into the network, I can work the phones ... and I am getting over the jitters of being new," he said. "Despite this relatively good progress ... I am disappointed to report to you that at this point I do not have the answers.
Favors Change in Timing
Separately, Mr. Taylor stepped into the fray over the banking reform bill by endorsing an amendment to loosen the measure's strict early-intervention provisions.
As approved by the House Banking Committee, the bill requires federal regulators to take control of financial institutions as soon as Tier 1 capital dips below 2% of assets.
Rep. John J. LaFalce, D.-N.Y., wants regulators to give more leeway to institutions that are earning profits and operating under regulatory constraints, such as a capital-raising plan.
In an Oct. 28 letter to Rep. LaFalace, Mr. Taylor called the amendment "sensible."