On September 18, 2018, the Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC (collectively, the "agencies") jointly proposed regulation implementing Section 214 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.
As described more fully in the Cadwalader Memorandum, Section 214 provides relief to banking organizations with acquisition, development or construction lending exposure by narrowing the types of exposures that constitute a "high volatility commercial real estate ("HVCRE") exposure" - a concept relevant for determining the capital charge for such a loan under U.S. bank capital regulations.
The proposal will, among other things:
- narrow the definition of "HVCRE exposure";
- add new exemptions for financing secured by existing income-producing property;
- expand the existing "HVCRE exposure" exemption for financing with 15 percent borrower contributed capital to include borrower contributions of real property or improvements;
- clarify that the 15 percent exemption can be applied to a loan financing a specific project or phase;
- allow a banking organization to reclassify an "HVCRE exposure" as a traditional commercial loan exposure (reducing its risk-weighting to 100 percent); and
- enable banking organizations to automatically (and immediately) reclassify "HVCRE exposures" originating prior to January 1, 2015 as corporate exposures subject to a 100 percent risk-weighting.
Comments on the proposal must be submitted by November 27, 2018.
The memorandum was authored by Scott Cammarn, James Carroll, Mark Chorazak and Steven Herman.
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