Federal Reserve Vice Chair for Supervision Michael S. Barr previewed the latest revisions to the Basel III Endgame capital requirements this week. Amid industry opposition, Barr scaled back his initial proposal to raise capital requirements for large banks, offering a more measured approach to the rule. (Bloomberg, Sept. 10)

Basel III & CRE

• The revised proposal would increase aggregate Common Equity Tier 1 (CET1) capital requirements for global systemically important banks by roughly 9%—half of what would have been required in the original proposal.

• Banks with assets between $100 billion and $250 billion are now exempt from most of the proposed changes, except for recognizing unrealized gains and losses in regulatory capital. (Politico, Sept. 10)

• "There are benefits and costs to increasing capital requirements," Barr said during his September 9 remarks at the Brookings Institution. "The changes we intend to make will bring these two important objectives into better balance, in light of the feedback we have received." (Barr’s Speech | Bloomberg, Sept. 10)

• The proposal reduces risk weights for certain residential mortgages, and retail exposures, extending this reduction to low-risk corporate debt. However, commercial real estate risk weights remain unclear.

• Non-GSIB banks would see a long-term increase of 3 to 4% in capital requirements, mainly from the inclusion of unrealized gains and losses. Other changes are expected to add just 0.5% to their capital obligations.

• The Roundtable raised industry concerns about the negative impact of the Basel III proposal in a Jan. 12 letter to the Fed and other agencies. The comments outlined how the proposal would decrease real estate credit availability, increase borrowing costs for commercial and multifamily real estate properties, and negatively impact the U.S. economy, concluding with a call to federal regulators to withdraw their proposed rulemaking. (Roundtable Weekly, Mar. 29)

What’s Next

• An open Board meeting is expected to be scheduled to review the revised plan, with an announcement expected as early as Sept. 19. The plan will be open to public comment for 60 days once released.

• While this new proposal is an improvement of the original plan, we remain concerned that any increase in capital requirements will have a pro-cyclical impact on credit capacity and still carry a cost for commercial real estate and the overall economy.

The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) will continue to monitor and respond to any further changes to the Basel III Endgame proposal and other federal policy issues impacting credit capacity and capital formation.