Agencies release update on capital proposal for CRE assets

WASHINGTON — The federal banking regulators issued a new proposal Friday asking for further public comment on changing the definition of a “high volatility commercial real estate exposure.”

The agencies initially including HVCRE assets among a series of capital-related changes for small banks in a September proposal. But in a rule published Tuesday, the agencies — including the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency — finalized the other capital changes but said they would address HVCRE in a subsequent proposal.

Office of the Comptroller of the Currency

The Office of the Comptroller of the Currency, along with the two other banking regulators, issued a proposal to clarify which loans qualify for exclusion from the definition of “high volatility commercial real estate” exposure.

Bloomberg News

The September proposal asked for public comment on matching the definition of a “high volatility commercial real estate exposure” with that of a “high volatility commercial real estate acquisition, development or construction loan.” The regulators also proposed that one- to four-family residential properties be excluded from the definition of an HVCRE exposure.

But after reviewing comments from that proposal, the agencies decided that the regulatory capital treatment of those high-risk commercial real estate loans should be clarified further. The September proposal would still stand, but the regulators now want to add a new paragraph making clear that credit facilities that finance land development activities would not be exempt from an HVCRE exposure.

“Allowing banking organizations to apply a consistent definition of one- to four-family residential property and land development in this manner would simplify reporting requirements, reduce burden and promote uniform application of the capital rule,” the regulators said in their new notice of proposed rulemaking.

In 2017, the regulators first proposed making changes to the capital treatment of HVCRE and other assets for banks that opt out of using the “advanced approaches” framework for calculating their capital requirements, which tend to be banks with less than $250 billion in assets. The changes were proposed under the Economic Growth and Regulatory Paperwork Reduction Act, which requires the agencies to review rules to eliminate outdated or unnecessary regulations.

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