Regulatory Capital Treatment for High Volatility Commercial Real Estate (HVCRE) Exposures
| Published date | 26 December 2018 |
| Citation | 83 FR 66166 |
| Record Number | 2018-27786 |
| Section | Proposed rules |
| Court | The Comptroller Of The Currency Office |
Federal Register, Volume 83 Issue 246 (Wednesday, December 26, 2018)
[Federal Register Volume 83, Number 246 (Wednesday, December 26, 2018)]
[Proposed Rules]
[Pages 66166-66167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27786]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
12 CFR Part 3
[Docket ID OCC-2018-0026]
RIN 1557-AE48
Regulatory Capital Treatment for High Volatility Commercial Real
Estate (HVCRE) Exposures
AGENCY: Office of the Comptroller of the Currency, Treasury (OCC).
ACTION: Notice of proposed rulemaking; correction.
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SUMMARY: This document corrects OCC's Regulatory Flexibility Act
certification for the proposed rule that was published in the Federal
Register on September 28, 2018, entitled ``Regulatory Capital Treatment
for High Volatility Commercial Real Estate (HVCRE) Exposures.''
DATES: The proposed rule published on September 28, 2018 at 83 FR 48990
is corrected as of December 26, 2018. Comments must be received by
January 25, 2019.
FOR FURTHER INFORMATION CONTACT: Carl Kaminski, Special Counsel, or
Rima Kundnani, Attorney, (202) 649-5490 or, for persons who are deaf or
hearing impaired, TTY, (202) 649-5597.
SUPPLEMENTARY INFORMATION:
I. Background
This document supplements the OCC's Regulatory Flexibility Act
(RFA) certification for the notice of proposed rulemaking entitled
``Regulatory Capital Treatment for High Volatility Commercial Real
Estate (HVCRE) Exposures'' (proposed rule) published on September 28,
2018, Federal Register Document 2018-20875 (83 FR 48990), by the OCC,
the Board of Governors of the Federal Reserve System, and the Federal
Deposit Insurance Corporation. The sections of this correction document
are effective as if they had been included in the SUPPLEMENTARY
INFORMATION section of the proposed rule.
II. Summary of Supplemental Language
The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires an
agency, in connection with a proposed rule, to prepare an Initial
Regulatory Flexibility Analysis describing the impact of the rule on
small entities (defined by the SBA for purposes of the RFA to include
commercial banks and savings institutions with total assets of $550
million or less and trust companies with
[[Page 66167]]
total assets of $38.5 million of less) or to certify that the proposed
rule would not have a significant economic impact on a substantial
number of small entities.
In the OCC's portion of the SUPPLEMENTARY INFORMATION section
titled ``Regulatory Flexibility Act Analysis'' of the proposed rule,
``Regulatory Capital Treatment for High Volatility Commercial Real
Estate (HVCRE) Exposures,'' the OCC stated that the proposal likely
would impact a substantial number of small entities. However, the OCC
determined that the impact of the proposal would not be economically
significant. Therefore, the OCC certified, for the purpose of the RFA,
that the proposed rule would not have a significant economic impact on
a substantial number of OCC-supervised small entities.
The United States Small Business Administration, which monitors
compliance with the RFA, has asked the OCC to provide additional detail
to support its certification. Therefore, the OCC is revising the
administrative record to include additional information.
Correction
In the third column on page 48996 and the first column on page
48997, revise the section following ``B. Regulatory Flexibility Act
Analysis'' to read as follows:
``OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA),
requires an agency, in connection with a notice of proposed rulemaking,
to prepare a Final Regulatory Flexibility Analysis describing the
impact of the proposed rule on small entities (defined by the Small
Business Administration (SBA) for purposes of the RFA to include
banking entities with total assets of $550 million or less) or to
certify that the proposed rule would not have a significant economic
impact on a substantial number of small entities.
As of June 30, 2018, the OCC supervised 886 small entities.\1\
Currently, 211 small OCC-supervised institutions hold high volatility
commercial real estate (HVCRE) exposures and thus will be directly
impacted by the proposed rule. Therefore, the proposed rule potentially
affects a substantial number of small entities.
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\1\ The OCC calculated the number of small entities using the
SBA's size thresholds for commercial banks and savings institutions,
and trust companies, which are $550 million and $38.5 million,
respectively. Consistent with the General Principles of Affiliation,
13 CFR 121.103(a), the OCC counted the assets of affiliated
financial institutions when determining whether to classify a
national bank or Federal savings association as a small entity.
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The proposed rule would impact two principal areas: (1) The impact
associated with implementing revisions to the capital rule to make the
definition of an HVCRE exposure consistent with the new statutory
definition and, (2) the impact associated with the time required to
update policies and procedures and to re-evaluate HVCRE loan
portfolios.
As described in the Supplementary Information section in the
preamble to this proposed rule, the OCC believes the change to the
definition of HVCRE exposure would result in fewer loans being deemed
HVCRE exposures. Therefore, the amount of capital required would
decrease for impacted OCC-supervised entities.
Further, the OCC believes no currently reported non-HVCRE
acquisition, development, or construction (ADC) exposures would be
reclassified as HVCRE exposures, and thus there would be no additional
compliance burden to OCC-supervised entities for the non-HVCRE
component of their ADC portfolios. The proposed rule would not require
OCC-supervised entities to amend previously filed reports as OCC-
supervised entities adjust their estimates of existing HVCRE exposures.
This would serve to minimize the compliance burden for OCC-supervised
entities.
Compliance burdens that OCC-supervised entities may face could
include: (1) Updating policies and procedures to classify newly issued
HVCRE loans; and (2) time spent re-evaluating existing HVCRE exposures
in order to determine if any are eligible to be reclassified and thus
receive a lower risk-weight of 100 percent. Based on the OCC's
supervisory experience, OCC staff estimates that it would take an OCC-
supervised institution, on average, a one-time investment of one
business week, or 40 hours, to update policies and procedures and to
re-evaluate their HVCRE exposures for loans originated after January 1,
2015.
The OCC's threshold for a significant effect is whether cost
increases associated with a proposed rule are greater than or equal to
either 5 percent of a small bank's total annual salaries and benefits
or 2.5 percent of a small bank's total non-interest expense. The
estimated compliance costs of $4,680 per institution (40 hours x $117
per hour) \2\ would not exceed either of these thresholds for a
significant impact on any of the 886 OCC-supervised small entities.
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\2\ To estimate average hourly wages we review data from May
2017 for wages (by industry and occupation) from the U.S. Bureau of
Labor Statistics (BLS) for depository credit intermediation (NAICS
522100). To estimate compensation costs associated with the rule, we
use $117 per hour, which is based on the average of the 90th
percentile for seven occupations adjusted for inflation, plus an
additional 34.2 percent to cover private sector benefits.
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For this reason, the OCC certifies that the proposed rule would not
have a significant economic impact on a substantial number of OCC-
supervised small entities.''
Dated: December 18, 2018.
William A. Rowe,
Chief Risk Officer.
[FR Doc. 2018-27786 Filed 12-21-18; 8:45 am]
BILLING CODE 4810-33-P
