US Agencies Consult on Capital Treatment of Land Development Loans

This proposal expands on the notice of proposed rulemaking issued on September 28, 2018, which proposed to revise the definition of HVCRE exposure in the regulatory capital rule to conform to the statutory definition of ‘‘high volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loan,’’ in accordance with section 214 of the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The one- to four-family residential properties exclusion would not include credit facilities that solely finance land development activities, such as the laying of sewers, water pipes, and similar improvements to land. A facility that solely finances land development would be categorized as an HVCRE exposure, unless the exposure meets another exclusion from the revised HVCRE exposure definition.

Allowing banking organizations to apply a consistent definition of one- to four-family residential property and land development in this manner would simplify reporting requirements, reduce burden, and promote uniform application of the capital rule. The proposed rule requires changes to the Call Reports (FFIEC 031, FFIEC 041, and FFIEC 051), the Risk-Based Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101), and the Consolidated Financial Statements for Holding Companies (FR Y-9C), which will be addressed in separate Federal Register notices. 

Related Links

• Joint Press Release
• Proposed Rule
• FDIC Financial Institution Letter

Comment Due Date: August 22, 2019

Keywords: Americas, US, Banking, HVCRE, EGRRCP Act, Residential Real Estate, Regulatory Capital Rule, Reporting, Call Reports, FFIEC 101, FR Y-9C, US Agencies