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New Banking Regulations Pose a Threat to Commercial Real Estate Lending, Says MBA


Feb 13, 2024

Proposed rules are in place to require bank lenders to maintain a thicker capital buffer to protect against losses, and the Mortgage Bankers Association is warning that this could intensify ongoing real estate turmoil. CEO Bob Broeksmit said that the proposal threatens to hold back bank lending and stifle liquidity in the commercial property sector. He emphasized that such large scale capital holding could be better allocated to areas that need revitalization and to support job creation.

Broeksmit further criticized Basel III policy, stating that if a single loan defaults, regulators could assign a 150% risk weight not only to that specific loan but to all loans linked to the same borrower. According to him, each commercial financial transaction is separate and distinct. Some groups outside of the banking industry have also criticized the proposals as too stifling. Consumer groups last month joined the chorus of bankers in calling for the rejection of the Basel III proposal over fears that it would strangle credit availability for underserved borrowers.

The regulatory framework would mandate that banks with $100 billion or more in total assets ramp up their capital by an average of 20%, part of broad efforts by international governments following the 2008 crisis to make sure banks can withstand unexpected losses. If the proposal goes into effect, the eight largest banks would see a roughly 19% rise in capital requirements, while lenders with assets ranging from $100 billion to $250 billion would see a 5% increase.

Broeksmit slammed the proposal at the CREF 24 conference in San Diego, stating that it could be the end of bank real-estate finance as it is currently known. He highlighted that approximately 50% of commercial real estate lending is managed by the banks that are under scrutiny, and stated that the forced capital to be held as part of the new rules could be used in other better ways to help the economy.

By Editor

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