Regulators propose new capital treatment for higher-risk CRE exposures

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WASHINGTON — Federal bank regulators on Tuesday proposed capital rule changes for certain higher-risk commercial real estate loans as required by the regulatory relief law signed by President Trump in May.

Under the new regulatory relief law, agencies may only require a depository institution to assign a heightened risk weight to a "high-volatility commercial real estate" exposure if the exposure in question is an acquisition, development or construction loan.

The agencies also proposed that certain types of loans be excluded from the amended HVCRE category, such as those secured by 1-4 family residential properties, and those that involve an investment in community development.

The Federal Reserve Board, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. asked for public comment on the changes, which would apply to all banking organizations subject to the agencies’ capital rules. The comment period will last 60 days.

The proposal and statutory provision amend regulatory capital rules that were adopted in 2013 to address “weaknesses in the regulatory framework that became apparent in the financial crisis of 2007-08,” the agencies wrote in the proposal.

The regulators asked for comment on 11 questions about the proposed rule, including whether certain terms need to be clarified and if the proposed exclusions from the rule are clearly defined.

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