Page 10

CRE Finance World, Summer 2012

Is 2012 Different, or just 2011 “2.0”? Specifically, a re-proposal could encompass part — or all — of the use of credit ratings. In February, the Real Estate Roundtable and rule, depending on where changes are warranted. We believe, due to CREFC filed a joint response letter outlining the following concerns the nature of the comments sent to the regulators, that a re-proposal with the formula: may take the form of the SEC’s Regulation AB re-proposal, where portions of the regulation are put out for further public comment. •The SSFA is countercyclical. The proposed model requires less capital when the economy is productive, but requires institutions The big question among our membership has been the Premium to raise capital during downturns. On paper, this seems logical, Capture Cash Reserve Account (“PCCRA”). The concern is that but the timing of the capital raise could be problematic, as the PCCRA may curtail the CMBS market in the midst of a nascent institutions would be required to raise capital in times when recovery, and could prove problematic for the $1.2 trillion in loans liquidity will be scarce. that must be refinanced by 2017. •The SSFA is not risk-sensitive. Because U.S. regulators cannot Volcker Rule: In April, regulators provided clarification that institutions use credit ratings in their approach, the proposed SSFA makes affected by the Volcker Rule will have until July 21, 2014 to comply. it extremely difficult to distinguish between investment grade Of course, as of this article, there is no final Volcker Rule with which bonds and riskier bonds. Therefore, the model appears to allow to comply. However, both Congressman Barney Frank (D-MA), a institutions to hold the same capital regardless of the risk of primary author of the Dodd-Frank legislation, and Daniel Tarullo, the asset. Federal Reserve Board governor, agree that a final rule — while unlikely to occur this summer — should be completed before 2013. •Securitized loans will require increased capital. The proposed formula requires stricter capital standards for securitized loans We believe that the final Volcker Rule will allow for the normal than portfolio loans. Specifically, the proposed rule states that warehousing and processing of CMBS, as the Dodd-Frank statute if the exact same 100 loans are put on a portfolio or put in a specifically allows for such transactions. We also believe this will be securitization, the securitization would be required to hold increased the case for the average vanilla conduit and non-conduit issuance. capital. The regulators state that this is due to the fact that they That said, we would not be surprised if enhanced compliance is want to avoid regulatory arbitrage. However, the rule does not required for non-vanilla securitizations, such as re-securitizations, give context in explaining the regulatory arbitrage that they are re-REMICs or CDOs. attempting to avoid. Securitization Capital Standards: Late last year, the Federal Reserve, The regulators would like to finalize this formula rather quickly, FDIC and OCC jointly released a proposed rule to implement the Reason being, the final SSFA formula — or any replacement to it — market risk portion of Basel 2.5. Within the proposal, the regulators will be used as the basis for implementing Basel III. The United States offered a new formulaic approach for calculating capital standards ranks near the bottom of the list when it comes to implementing for financial institutions, known as the “simplified supervisory formula Basel II.5 and Basel III and the regulators want to change this status. approach” (SSFA). Due to Dodd-Frank, the SSFA excludes the CRE Finance World Summer 2012 8


CRE Finance World, Summer 2012
To see the actual publication please follow the link above