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HVCRE Update – New Interagency FAQ

April 14, 2015

Authors

Jerry Blanchard

HVCRE Update – New Interagency FAQ

April 14, 2015

by: Jerry Blanchard

As previously mentioned, the federal banking regulators have been working on a FAQ on the topic. The interagency FAQ was published on April 6, 2015. While there were no surprises in what was published there were a number of takeaways from the FAQ that lenders need to keep in mind and I have added those to my previous list of FAQ. Under Basel III, as a general rule, a lender applies a 100% risk weighting to all corporate exposures, including bonds and loans. There are various exceptions to that rule, one of which involves what is referred to as “High Volatility Commercial Real Estate” (“HVCRE”) loans. Simply put, acquisition, development and construction loans are viewed as a more risky subset of commercial real estate loans and are assigned a risk weighting of 150%.

HVCRE is defined to include credit facility that, prior to conversion to permanent financing, finances

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High Volatility CRE Rules and Contributed Capital

March 30, 2015

Authors

Jerry Blanchard

High Volatility CRE Rules and Contributed Capital

March 30, 2015

by: Jerry Blanchard

The new risk weighting rules applicable to commercial real estate are now fully in effect for all banks. The rule flows out of the new capital rulemaking carried out by the federal banking agencies as a result of Basel III. As a general rule, the agencies agreed to apply a 100% risk weighting to all corporate exposures, including bonds and loans. There were various exceptions to that rule, one of which involves what is referred to as “High Volatility Commercial Real Estate” (“HVCRE”) loans. Simply put, acquisition, development and construction loans are viewed as a more risky subset of commercial real estate loans and are assigned a risk weighting of 150%.

HVCRE is defined to include credit facility that, prior to conversion to permanent financing, finances or has financed the acquisition, development, or construction (ADC) of real property, unless the facility finances:

  • One- to four-family residential properties;
  • Real property that
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  • Basel III Proposals Will Bring Changes to the Accounting of Bank Securities Portfolios

    October 16, 2012

    Authors

    Michael Shumaker

    Basel III Proposals Will Bring Changes to the Accounting of Bank Securities Portfolios

    October 16, 2012

    by: Michael Shumaker

    As part of the proposed Basel III capital rules, banks will be required to hold a greater portion of their total capital in the form of common equity. With the creation of a new Common Equity Tier 1 (“CET1”) ratio to be included with other minimum capital ratios and a new Capital Conservation Buffer to be composed exclusively of common equity, the proposed new capital rules signal a regulatory departure from allowing forms of hybrid capital to constitute a significant amount of a bank’s total capital. While the impacts of the new preference for CET1 will be significant, the methodology for calculating the CET1 ratio will also affect the interest rate and liquidity risk management tools available to community banks.

    In calculating the new CET1 ratio under the proposed rules, banks would be required to include Accumulated Other Comprehensive Income (“AOCI”) as part of CET1. For most community banks, the primary driver

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    The Georgia Bankers Association Delivers a Detailed Critique of the Basel III Proposals

    October 15, 2012

    Authors

    Bryan Cave

    The Georgia Bankers Association Delivers a Detailed Critique of the Basel III Proposals

    October 15, 2012

    by: Bryan Cave

    On October 12, 2012, the Georgia Bankers Association (the “GBA”) delivered a public comment letter on the proposed Basel III capital rules and the related proposed risk-weighting rules. A copy of the letter is available for viewing here.  In the comment letter, the GBA identifies over a dozen categories of key flaws in the proposed rules and concludes that the proposals should be withdrawn for further study or, at the very least, should be modified to exempt community and regional banks from their requirements.

    The GBA takes the position in the comment letter that the regulatory agencies have a duty to apply the principles that they espouse for stress testing and enterprise risk management to their own rulemaking process. The GBA argues that the proposals are likely to introduce complementary risks to financial institutions, especially community banks, the impacts of which are not yet fully

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    Opposition to Imposing Basel III Regime on Community Banks Growing; Comment Period Ends on October 22, 2012

    October 8, 2012

    Authors

    Michael Shumaker

    Opposition to Imposing Basel III Regime on Community Banks Growing; Comment Period Ends on October 22, 2012

    October 8, 2012

    by: Michael Shumaker

    In recent weeks, we have been closely monitoring a flurry of activity among many banking organizations to respond formally to the proposed Basel III rules. With few exceptions, the response of the banking industry, particularly with respect to the impact of the proposed Basel III rules on community-focused financial institutions, has been roundly negative.

    In mid-September, U.S. Senator Mark Warner (D-VA) and U.S. Senator Pat Toomey (R-PA) circulated a letter  to the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation that has garnered the signature of 51 of their colleagues in the U.S. Senate. The senators’ letter raises their concerns with the “significant, unintended consequences for community banks” that may stem from the proposed capital rules that would make it tougher for smaller banks to raise capital or result in reduced lending in the communities they serve.

    Another prominent critic of

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    New Proposed Capital Rules May Mean the Death of Highly Leveraged ADC Transactions

    June 19, 2012

    Authors

    Jonathan Hightower

    New Proposed Capital Rules May Mean the Death of Highly Leveraged ADC Transactions

    June 19, 2012

    by: Jonathan Hightower

    Many bankers are spending their evenings attempting to work through the very dense and long Joint Notices of Proposed Rulemakings that together propose new capital standards for financial institutions.  Even though the proposed Basel III rules would not become effective until January 1, 2013 and the proposed risk-weighting rules would not become effective until January 1, 2015, bankers need to begin to understand how these rules will affect their capital planning now.  While the regulatory agencies are busily assuring bankers that the vast majority of financial institutions would have been in compliance if the proposed rules had been effective on March 31, 2012, the rules, as proposed, will certainly change how many financial institutions approach their capital planning and asset mixes.

    One facet of the rule that may impact many community banks and their borrowers is the proposed risk-weighting of certain commercial real estate (CRE) loans.  While acquisition,

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    Financial Services Update – December 17, 2010

    December 17, 2010

    Authors

    Matt Jessee

    Financial Services Update – December 17, 2010

    December 17, 2010

    by: Matt Jessee

    Congress Passes Tax Package

    On Monday, the Senate passed the $858 billion tax package sending the bill back to the House where it passed late Thursday night. The bill now heads to President Obama’s desk for his signature into law. While the package does not include a repeal of the Form 1099 health care requirement or extension of the Buy American Bond program, the bill does the following major items:

    • extends through 2012 the current individual income tax brackets, capital gains and dividends rates for all taxpayers;
    • increases the AMT exemption amounts for 2010 to $47,450 (individuals) and $72,450 (married filing jointly) and for 2011 to $48,450 (individuals) and $74,450 (married filing jointly);
    • extends through 2011 the ability to take an itemized deduction for state and local general sales taxes in lieu of the itemized deduction permitted for state and local income taxes;
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