Roundtable Weekly - May 25, 2018

Capital and Credit - HVCRE

President Trump Signs Dodd-Frank Reform Bill With HVCRE Revisions

Revisions to the 2010 Dodd-Frank Act – including significant Roundtable-supported reforms to the Basel III High Volatility Commercial Real Estate (HVCRE) Rule – were signed into law by President Trump yesterday, two days after the House passed The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155). 

Revisions to the 2010 Dodd-Frank Act – including significant Roundtable-supported reforms to the Basel III High Volatility Commercial Real Estate (HVCRE) Rule – were signed into law by President Trump yesterday, two days after the House passed The Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155).

  • S. 2155 previously passed the Senate in March with the same clarifications and reforms as the House bill.  The HVCRE Rule created needless confusion and increased borrowing costs in the industry for CRE Acquisition, Development and Construction (ADC) lending.
  • Senate Banking Committee Chairman Mike Crapo (R-ID) commented, “This step toward right-sizing regulation will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities.” (Sen. Mike Crapo News Release, May 22)
  • Details of the new measure addresses key deficiencies in current and proposed regulations.  Real Estate Roundtable HVCRE Working Group Co-Chair Joseph Forte (Sullivan and Worcester) noted, “This legislative action is a welcome solution to a poorly designed regulatory capital scheme that has not matched with risk. This caused an unnecessary cost burden to all commercial banks and their real estate development customers.  In addition, it restores to borrowers the ability to offer appreciated land value as equity to banks, when validated through appraisal practices established in earlier statutes."  (Passage of Dodd-Frank Reform Encourages Investment, Economic Growth in Local Communities –Roundtable News Release, May 22) 
  • The Roundtable and twelve other real estate organizations detailed the industry's HVCRE policy positions and urged inclusion of the language in broader Dodd-Frank reform legislation (S. 2155). (Roundtable HVCRE Comment Letter, March 2)
  • “The Reform Bill, in provisions that are now effective, overrides certain highly conservative provisions in both the federal banking agencies’ (Banking Agencies) Basel III capital rule and their interpretations of it.” ( Dodd Frank 2.0: Reforming U.S. HVCRE Capital TreatmentGibson Dunn, May 24)

Since 2015, The Roundtable's HVCRE Working Group and industry coalition partners have played a key role in advancing specific reforms to the HVCRE Rule.  During next month's Real Estate Roundtable Annual Meeting, HVCRE will be a focus of discussion, with more specific details offered during the Real Estate Capital Policy Advisory Committee (RECPAC) meeting on June 14.

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Volcker Rule

Fed to Consider Changes to Volcker Rule

The Federal Reserve announced this week that it will consider a proposal to modify the “Volcker Rule” at a May 30 meeting of its board.  As a provision of the 2010 Dodd-Frank Act that puts restrictions on proprietary trading practices at banks, enforcement of the Volcker Rule is currently shared by five separate federal agencies – The Fed, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).  (Fed Statement, May 23)

The Federal Reserve announced this week that it will consider a proposal to modify the “Volcker Rule” at a May 30 meeting of its board.

  • “The Fed is the first regulator to set a date for discussing the proposal known as ‘Volcker 2.0.’ Four other agencies are also expected to adopt modifications to the rule. The changes will give large Wall Street banks more trading freedom, as regulators tweak restrictions on market making, hedging and other activities..” (The Wall Street Journal, May 25)
  • Fed Vice Chairman for Supervision Randal Quarles in a March speech said, "It should be clearer and more transparent what is subject to the Volcker Rule’s implementing regulation and what is not. The definition of key terms like 'proprietary trading' and 'covered fund' should be as simple and clear as possible."  (American Banker, May 23)
  • House policymakers are considering adding to  must-pass budget legislation a measure that would put the Fed in charge of regulating the Volcker Rule.  The measure, sponsored by Rep. French Hill (R-AR), passed the House in April but has faces an uncertain fate in the Senate.  (U.S. House Considers Adding Volcker Rule Shift to Budget BillBloomberg, May 21)

The Dodd-Frank reform bill signed into law yesterday by President Trump exempts banks with less than $10 billion in assets from the Volcker Rule (named for former Fed Chairman Paul Volcker).

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Capital and Credit - CFIUS Reforms - Homeland Security

Senate and House Committees Approve Bills Addressing Foreign Investment Risk; Includes Language Affecting Real Estate

Separate bills that would overhaul the process for reviewing foreign investment risk – including a purchase or lease by a foreign party of domestic properties located close to sensitive U.S. facilities – received unanimous approval Wednesday by the Senate Banking and House Financial Services Committees.  (Lexology, May 23)

Real estate provisions in  S. 2098  appear on pages 7 through 9.

  • The committees’ revised versions of the Foreign Investment Risk Review Modernization Act (FIRRMA) – S. 2098 and HR 5841 – seek to modernize and strengthen how the Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions, mergers, and other foreign investments in the United States for national security risks.  Both bills would expand the list of covered transactions to include some foreign purchases and leases of real estate near military and other strategic facilities. (Real estate provisions in S. 2098 appear on pages 7 through 9.)
  • As a result of industry discussions with Senate and Treasury staff, the new legislative drafts include the addition of language designed to exempt real estate in 'urbanized areas' from the criteria of a covered transaction.  The Census defines an urbanized area as one comprising more than 50,000 people. 

FIRRMA may be ready for floor consideration in the House and Senate before the August congressional recess. The Trump Administration has shown support for reforming FIRRMA to strengthen CFIUS’ oversight. 

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