February 24, 2024 12:39 pm
New Regulations for Banks Pose Threat to Commercial Real Estate Lending, Says MBA

In a speech at the CREF 24 conference in San Diego, Mortgage Bankers Association CEO Bob Broeksmit strongly opposed proposed rules that would require bank lenders to maintain a thicker capital buffer. He argued that implementing these regulations would exacerbate ongoing real estate turmoil and have detrimental effects on bank lending and liquidity in the commercial property sector.

Broeksmit emphasized the large portion of commercial real estate lending that is managed by banks, and pointed out that these regulations would force them to hold underutilized capital. He urged regulators to consider alternative approaches to addressing concerns about capital requirements, such as increasing transparency in lending practices or improving risk management systems.

The proposed regulations would require banks with $100 billion or more in total assets to increase their capital by an average of 20%. The largest banks would see a 19% rise in capital requirements, while banks with assets ranging from $100 billion to $250 billion would see a 5% increase, according to regulators.

Brooksmit also criticized the Basel III policy regarding defaulted commercial real estate loans, particularly the designation of a 150% risk weight to all loans associated with a borrower when a single loan defaults. He argued that each commercial financial transaction should be evaluated independently and not be tied to the performance of other loans under the same borrower.

The Basel III proposals have raised concerns from various groups, including consumer organizations, who fear that they will inhibit credit availability for underserved borrowers. If the rules are put into effect, it will be critical for banks and regulators to carefully assess their implications in order to address these concerns and ensure that credit remains accessible for all borrowers.

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