Proposed Rules Would Raise Capital Charges on Large Banks

July 28, 2023

On July 27, the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency (OCC) jointly proposed revised bank capital standards (Proposal). Comments are due November 30, 2023.

  • CREFC will host a webinar on September 12 at 3:00 PM featuring capital experts from Mayer Brown to cover the proposal’s key details, including implications for CRE lending.

Why it matters: Capital requirements impact banks’ ability to lend and cost of doing business. The Proposal, which targets large banks with over $100 billion in assets, will implement the final international Basel III standards and respond to some of the early -2023 regional bank turmoil.

The full impact on the CRE finance market is unclear, but the economic analysis in the proposal points to marginal reduction in capital charges for CRE loans. The same may not be true for securitization.

The agencies estimate that the proposal would slightly decrease marginal risk-weighted assets attributable to retail and commercial real estate exposures and slightly increase marginal risk-weighted assets attributable to corporate, residential real estate and securitization exposures (Proposal pg. 498).

The big picture: The 1,000 page proposal will take time to digest, but big policy changes are below:

  • Increased Overall Capital Requirements: The additional capital will rise depending on bank size and complexity, according to Politico. GSIBs capital requirements will go up 19%; non-GSIB larger than $250 billion will go up 10%; and $100 billion to $250 billion will go up by 5%. Regulators expect most banks will already meet these levels.
  • Regional Bank Crisis Response: The Proposal would repeal most of the so-called tailoring for $100 billion to $250 billion sized banks and subject them to the same standards as most larger banks.
  • Recognizing Unrealized Losses: Large banks would have to include unrealized gains and losses from certain securities in their capital ratios.
  • Market Risk Capital: Changes to the market risk capital are part of the unfinished Fundamental Review of the Trading Book proposal and will significantly increase capital charges for banks with trading operations.
  • Standardized Approach: The proposal would impose a standard capital charge for credit risks and operational risks, rather than relying on internal bank models.

CRE Impact: CREFC will be analyzing the specific impact on commercial and multifamily real estate finance, but some initial areas to note are below.

Commercial Real Estate Exposure Risk-Weights

  • Expanded Real Estate Categories: The Proposal introduces several new terms related to commercial and multifamily real estate loans. It assesses risk-weights based on the real estate’s source of repayment, LTV, construction status, and default status.
  • Lower CRE Capital Charges? For certain CRE exposures, the risk-weight is reduced from the standard 100% based on the type of loan and its LTV. This could marginally reduce capital requirements for CRE loans, as that same loan now would likely be assessed a 100% risk-weight.
  • CRE Risk-Weights: A CRE loan with a 60% or less LTV would received a risk-weight of 70%. LTVs in the 60% to 80% range would receive a 90% risk-weight, and LTVs over 80% would be charged 110%.
  • The High Volatility Commercial Real Estate (HVCRE) standards are unchanged and apply a 150% risk weight to certain acquisition, development, and construction (ADC) loans.
  • ADC loans can still be exempt from the higher HVCRE charge if they meet certain requirements, which Congress enshrined into statute in 2018. Non-HVCRE ADC loans receive a 100% risk-weight.

Securitization: The new and complex market risk capital standards are expected to substantially increase capital requirements related to trading activities.

  • Additionally, banks that provide third-party loan servicing and manage properties post-foreclosure could see some impact.
  • CREFC is analyzing the potential impact to CMBS and CRE CLOs and will report back.

The bottom line: The capital rules are complex. CREFC will examine how various provisions interact as this dynamic will be critical to understanding their broader impact.

CREFC will form a working group to comment on the proposal. Please contact Sairah Burki at and David McCarthy with any questions or to join the working group.


Sairah Burki
Managing Director, Regulatory Affairs

David McCarthy
Managing Director, Head of Policy

Real estate exposure decision tree chart

A chart in the new Basel Endgame Proposal details a decision tree on assigning capital charges to real estate loans.

The information provided herein is general in nature and for educational purposes only. CRE Finance Council makes no representations as to the accuracy, completeness, timeliness, validity, usefulness, or suitability of the information provided. The information should not be relied upon or interpreted as legal, financial, tax, accounting, investment, commercial or other advice, and CRE Finance Council disclaims all liability for any such reliance. © 2023 CRE Finance Council. All rights reserved.

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