IBA Compliance Connection

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The federal bank regulatory agencies recently issued a proposed rule to revise the definition of High Volatility Commercial Real Estate (HVCRE) exposures. The accompanying Financial Institution Letter from the FDIC stated that this proposed change is “applicable to all banks.” What does this really mean for a smaller community bank?

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The significance of the proposed changes to the HVCRE definition will depend on the amount of HVCRE exposure held by your bank.

The proposed HVCRE definition would exclude several new categories of loans from the HVCRE definition, such as loans made before January 1, 2015 — generally resulting in a 100% risk weighting for such a loan, rather than the 150% risk weighting applicable to HVCRE loans. However, the change in risk weighting will not affect banks that currently do not hold any HVCRE loans.

All HVCRE loans should be reported in your bank’s Call Report, on Schedule RC-R, Part II, items 4.b and 5.b. If your bank currently does not have any HVCRE exposure, showing “$0” in those items, and does not plan to originate or hold any HVCRE loans, then these proposed changes will have little to no impact on your bank.

For resources related to our guidance, please see:

  • FFIEC Call Report Instructions (FFIEC 031 and 041), Schedule RC-R, Part II, Item No. 4.b, page 492 (June 2018) (“High volatility commercial real estate exposures. Report in column A the carrying value of loans held for sale (HFS) reported in Schedule RC, item 4.a, that are high volatility commercial real estate (HVCRE) exposures . . . .”)
  • FFIEC Call Report Instructions (FFIEC 031 and 041), Schedule RC-R, Part II, Item No. 5.b, page 498 (June 2018) (“High volatility commercial real estate exposures. Report in column A the portion of the carrying value of loans HFI [held for investment] reported in Schedule RC, item 4.b, that are high volatility commercial real estate (HVCRE) exposures . . . .”)