September 28, 2017
Authored by: Robert Klingler
On the latest episode of The Bank Account, “Adding HVADC to our Banking Alphabet Soup,” Jonathan and I are joined by colleague Jerry Blanchard to discuss the new capital rules proposed by the federal banking regulators on September 27, 2017. The newly proposed regulators propose to overhaul the HVCRE regime with a “new and improved” HVADC regime, while also increasing the amount of Mortgage Servicing Assets (MSAs) and Deferred Tax Assets (DTAs) that can be included in Tier 1 Capital.
As discussed yesterday, the new HVADC rule would likely expand the scope of loans that require elevated risk-weighting, but reduce the risk-weighting from 150% to 130%. In addition, the new rules would eliminate the need (or risk-weighting benefit) to require borrower contributed capital (and to retain any internally generated profits from the project for the life of the loan).
The proposed rule for MSAs and DTAs would require 250% risk-weighting for such assets (as contemplated in the original BASEL III rules as of January 1, 2018 and proposed to be delayed in August), but would also allow financial institutions to include MSAs and DTAs as capital, each up to 25% of Tier 1 Capital (with no separate aggregate cap amongst them).