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    FDIC Proposes Amendments to Real Estate Lending Standards

    June 25, 2021

    FDIC is seeking comments on a rule to amend the interagency guidelines for real estate lending policies—also known as the Real Estate Lending Standards. The amendments are intended to conform the method for calculating the ratio of loans in excess of the supervisory loan-to-value (LTV) limits with the capital framework established in the community bank leverage ratio (CBLR) rule. The CBLR rule does not require electing institutions to calculate tier 2 capital or total capital. The proposed amendment would provide a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions. Comments on the proposed rule will be accepted until July 26, 2021.

    FDIC is proposing to amend the Real Estate Lending Standards so that all supervised institutions, qualifying community banking organizations that elect to use the CBLR framework (electing institutions), and other insured financial institutions would calculate the ratio of loans in excess of the supervisory LTV Limits using tier 1 capital plus the appropriate allowance for credit losses in the denominator. The proposed amendment would provide a consistent approach for calculating the ratio of loans in excess of the supervisory LTV Limits for all FDIC-supervised institutions. The proposed amendment would also approximate the historical methodology specified in the Real Estate Lending Standards for calculating the loans in excess of the supervisory LTV limits without creating any regulatory burden for electing institutions and other banking organizations. FDIC is proposing this approach to provide regulatory clarity and avoid any regulatory burden that could arise if electing institutions subsequently decide to switch between the CBLR framework and the generally applicable capital rules.

    FDIC is proposing to amend the Real Estate Lending Standards only relative to the calculation of loans in excess of the supervisory LTV limits due to the change in the type of capital information that will be available and is not considering any revisions to other sections of the Real Estate Lending Standards. FDIC believes that a threshold of “tier 1 capital plus an allowance for credit losses” is consistent with the way the FDIC and other institutions have historically applied the Real Estate Lending Standards. Also, the typical (or median) FDIC-supervised institution that had not elected for the CBLR framework reported no difference between the amount of its allowance for credit losses and its tier 2 capital. Consequently, although FDIC does not have information about the amount of real estate loans at each institution that currently exceeds, or could exceed, the supervisory LTV limits, FDIC does not expect the proposed rule to have a material impact on the safety and soundness of, or compliance costs incurred by, the FDIC-supervised institutions. FDIC also believes that this proposed rule, if implemented, would not impose new reporting, disclosure, or other requirements and would likely instead reduce such burdens by allowing the electing community banking organizations to avoid calculating and reporting tier 2 capital, as would be required under the current Real Estate Lending Standards.

     

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    Comment Due Date: July 26, 2021

    Keywords: Americas, US, Banking, LTV, CBLR Framework, Regulatory Capital, Credit Risk, CRE, Basel, Leverage Ratio, Real Estate Lending Standards, Community Banks, RRE, FDIC

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