By Jeff Bater
Capital rules for community and mid-sized banks would be simplified under a proposal issued Sept. 27 by federal banking agencies.
The proposed rule would simplify the capital treatment for certain acquisition, development, and construction (ADC) loans and for mortgage servicing assets, aside from offering other relief.
The rule from the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, and the Federal Reserve stems from a review the regulators began in 2014 under the Economic Growth and Regulatory Paperwork Reduction Act.
The proposal addresses what regulators called “the complex definition” of high volatility commercial real estate (HVCRE) exposures in the agencies’ standardized approach capital framework. The rule replaces it with a more straightforward definition for higher-risk ADC loans called high volatility acquisition, development, or construction (HVADC).
Acting Comptroller of the Currency Keith Noreika said in a statement that the proposed capital rule strikes “an appropriate balance between simplicity and risk-sensitivity for small and medium-sized institutions.”
Thomas Hoenig, vice chairman of the FDIC, criticized the proposal, saying it is “neither simpler nor less burdensome than the current rule.”
“It is just different,” he said in a statement. “It falls well short of achieving the kind of simplification that would provide truly meaningful benefit to the industry, investors, and the public. Unfortunately, the proposed changes will only perpetuate the disparate capital benefits across banks of different sizes and provide only minimal regulatory reporting relief.”
Most of the changes proposed Sept. 27 would apply to banks with less than $250 billion in total consolidated assets and less than $10 billion in total foreign exposure.
A bank industry group said the proposal is “a step in the right direction,” but said it should apply to the largest U.S. banks as well. “We urge regulators to undertake similar commonsense efforts to refine capital rules for all banks,” Rob Nichols, president of the American Bankers Association, said in a statement.
Going forward, it is appropriate for the banking agencies to additional measures “to simplify the existing regulatory capital rules for community banks,” FDIC Chairman Martin Gruenberg said in a statement. He encouraged those commenting on the rule proposed Sept. 27 to focus on such approaches.
In June, Treasury Secretary Steven Mnuchin recommended the regulators simplify the overall capital regime for community banks. He also specifically suggested regulators move forward with efforts to simplify and clarify the definition of HVCRE loans “to avoid the application of higher risk-weights for loans where it would be unnecessary.”
To contact the reporter on this story: Jeff Bater in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)