New rules for banks would be the ‘end of real-estate finance as we know it,’ MBA says

Feb 14, 2024

Detroit, Michigan downtown skyline

Detroit, Michigan skyline.Sean Pavone/Shutterstock

  • Basel III proposals would cripple commercial property financing, MBA CEO Bob Broeksmit said.

  • The proposed regulation would require banks to maintain more capital to protect against loan losses.

  • “Basel III could be the end of bank real-estate finance as we know it,” Broeksmit said.

Proposed rules that would require bank lenders to maintain a thicker capital buffer to protect against losses will intensify ongoing real estate turmoil, the head of the Mortgage Bankers Association said this week.

MBA CEO Bob Broeksmit slammed the proposal, saying that it threatens to hold back bank lending and stifle liquidity in the commercial property sector.

“They’re called the ‘end-game proposal,’ but only one of those words is accurate. Basel III could be the end of bank real-estate finance as we know it,” Broeksmit said at the CREF 24 conference in San Diego on Monday.

Broeksmit highlighted that approximately 50% of commercial real estate lending is managed by the banks that are under scrutiny, suggesting that the capital they’re forced to hold as part of the new rules could be allocated toward areas in need of revitalization and to support job creation.

“Instead, it’s going to sit there, doing nothing. Washington, D.C. should be helping you lend more — not forcing you to lend less,” he said.

The regulatory framework would mandate that banks with $100 billion or more in total assets ramp up their capital by an average of 20%, part of broad efforts by international governments following the 2008 crisis to make sure banks can withstand unexpected losses.

If it goes into effect, the eight largest banks would see a roughly 19% rise in capital requirements, while lenders with assets ranging from $100 billion to $250 billion would see a 5% increase, regulators said.

Broeksmit also blasted Basel III policy regarding defaulted commercial real estate loans. Under this system, if a single loan defaults, regulators propose assigning a 150% risk weight not only to that specific loan but to all loans linked to the same borrower.

“It reflects the old adage that ‘one rotten apple spoils the whole barrel.’ But while that may be true in other industries, it has absolutely no bearing on ours,” he said, adding that each commercial financial transaction is separate and distinct.

This isn’t the first time Basel III has raised alarms, and some groups outside of the banking industry have also criticized the proposals as too stifling.

Consumer groups last month joined the chorus of bankers in calling for the rejection of the Basel III proposal over fears that it would strangle credit availability for underserved borrowers.

Read the original article on Business Insider

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