Detroit, Michigan skyline. Shawn Pavone/Shutterstock
MBA CEO Bob Broeksmit said the Basel III proposals would cripple commercial real estate lending.
The proposed rules would require banks to hold more capital to protect against loan losses.
“Basel III could be the end of bank real estate financing as we know it,” Broeksmit said.
The head of the Mortgage Bankers Association said this week that proposed rules requiring bank lenders to maintain thick capital buffers to protect against losses would intensify ongoing turmoil in the real estate market.
MBA CEO Bob Broeksmit slammed the proposal, saying it could stifle bank lending and restrict liquidity in the commercial real estate sector.
“These are being called 'endgame proposals,' but only one of those terms is accurate: Basel III could be the end of bank real estate financing as we know it,” Broeksmit said Monday at the CREF24 conference in San Diego.
Broeksmit noted that about 50% of commercial real estate lending is controlled by banks under supervision and suggested that the capital banks will be forced to hold as part of the new rules could be allocated to areas in need of revitalization or to support job creation.
“Instead, the banks are sitting there doing nothing. Washington, D.C., should be helping them lend more, not forcing them to lend less,” he said.
The framework, which requires banks with more than $100 billion in assets to hold an average 20% more capital, is part of a broader effort by governments to help banks withstand unexpected losses after the 2008 financial crisis.
If implemented, the rules would raise capital requirements by about 19 percent for the eight largest banks and 5 percent for institutions with assets between $100 billion and $250 billion, regulators said.
Broeksmit also sharply criticized Basel III policies on defaults on commercial real estate loans, which propose that if a single loan defaults, regulators should assign a 150% risk weight not just to that specific loan but to all loans linked to the same borrower.
“This reflects the old adage, 'one rotten apple rots the whole barrel,' but while this may be true in other industries, it has no relevance to ours,” he said, adding that each commercial finance transaction is separate and clearly distinguished.
This is not the first time Basel III has raised alarm, with groups outside the banking industry also criticizing the proposals as too restrictive.
Consumer groups last month called on bankers to reject the Basel III proposals, saying they could limit lending to underserved borrowers, and the group agreed.
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