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    US Agencies Finalize Rule to Amend Treatment of HVCRE Exposures

    December 13, 2019

    US Agencies (FDIC, FED, and OCC) finalized a rule to modify the treatment of high volatility commercial real estate (HVCRE) exposures, as required by the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The final rule clarifies certain terms contained in the HVCRE exposure definition, generally consistent with their usage in the Call Report instructions. The final rule also clarifies the treatment of credit facilities that finance one- to four-family residential properties and the development of land. The final rule will be effective from April 01, 2020.

    The agencies published a final rule to revise the definition of “high volatility commercial real estate (HVCRE) exposure” in the regulatory capital rule. This final rule conforms this definition to the statutory definition of “high volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loan,” in accordance with section 214 of the EGRRCP Act. The final rule also clarifies the capital treatment for loans that finance the development of land under the revised HVCRE exposure definition. On September 28, 2018, the agencies published an HVCRE proposal in the Federal Register to revise the HVCRE exposure definition in section 2 of the capital rule to conform to the statutory definition of an HVCRE ADC loan. On July 23, 2019, the agencies proposed to clarify a portion of the HVCRE proposal by publishing in the Federal Register a subsequent proposal (Land Development proposal) that would have added a new paragraph to the proposed definition of HVCRE exposure. 

    In response to the HVCRE proposal, the agencies received 54 comment letters, and, in response to the Land Development proposal, the agencies received 9 comment letters. The agencies are adopting a final definition of HVCRE exposure with modifications based on comments received on the HVCRE and Land Development proposals. In adopted final rule, the agencies made minor modifications to the proposed regulatory text. By its terms, the statutory definition of an HVCRE ADC loan applies only to depository institutions. The final rule applies the revised definition of an HVCRE exposure to all banking organizations that are subject to the agencies’ capital rule, including bank holding companies, savings and loan holding companies, and U.S. intermediate holding companies of foreign banking organizations.

    The final rule requires changes to the Call Reports (FFIEC 031, FFIEC 041, and FFIEC 051), Risk-Based Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework (FFIEC 101), and Consolidated Financial Statements for Holding Companies (FR Y-9C), which will be addressed in separate Federal Register notices. To facilitate the consistent application of the revised HVCRE exposure definition, the agencies are also clarifying the interpretation of certain terms in the revised HVCRE exposure definition generally to be consistent with their usage in other relevant regulations or the instructions to the Call Report and FR Y-9C, where applicable. The agencies plan to make conforming changes to the instructions of applicable regulatory reports (Schedule RC-R, Part II of the Call Report and Schedule HC-R, Part II of the FR Y-9C). 


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    Effective Date: April 01, 2020

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

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