UPDATED: Fed, FDIC, OCC propose HVCRE changes required by reg relief law

Banking regulators are proposing capital rule changes that would revise the definition of “high volatility commercial real estate (HVCRE) exposure” to conform with provisions that went into effect with the May 24 enactment of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA). Comments are due Nov. 27, according to a notice of the proposal in the Federal Register.

The proposal, issued jointly Wednesday by the Federal Reserve, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corp. (FDIC), would revise the regulatory capital rule definition of HVCRE exposure to conform to the definition of “high volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loan” created by EGRRCPA.

For consistent application, the agencies are also proposing to interpret certain terms in the revised HVCRE exposure definition generally consistent with their usage in other relevant regulations or the instructions to the Consolidated Reports of Condition and Income (Call Report), where applicable. Comments are also sought on whether any other terms in the revised definition would also require interpretation.

The proposal is out for a 60-day comment period, which begins upon publication of the proposed rule changes in the Federal Register.

The agencies pointed to the change in HVCRE exposure definition in a letter they issued jointly this July outlining changes mandated under EGRRCPA. The reform law makes the HVCRE change effective immediately, and the FDIC in July also issued a Financial Institution Letter explaining how this was to be handled through the June 30 call reports.

In that FIL, the federal bank deposit insurer said that regulators may only require a depository institution to assign a heightened risk weight to an HVCRE exposure if such exposure is an “HVCRE ADC Loan,” as defined under the new law. “Accordingly, an institution is permitted to risk weight at 150 percent only those commercial real estate exposures it believes meet the statutory definition of an ‘HVCRE ADC Loan,’” the instructions state.

As noted in the agencies’ propose rule summary, the statutory HVCRE ADC loan definition excludes any loan made prior to Jan. 1, 2015.

Regulatory Capital Treatment for High Volatility Commercial Real Estate (HVCRE) Exposures – (Federal Register notice)

Agencies propose rule regarding the treatment of high volatility commercial real estate