Basel Capital Standards for Banks and Thrifts - Issue Summary
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| What is the fundamental issue? |
| The Federal Reserve and the other federal bank regulators are proposing changes to capital requirements for banks (including thrifts). The Basel II capital framework would only apply to the 10-20 largest banks, and would attempt to align bank capital to risk through the application of complex formulas and each bank’s own historical data on loan performance and losses. The Basel I-A standard would be a new optional capital standard for the rest of the banking industry. |
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| I'm a Realtor®. What does this mean to my business? |
| The Basel Accords determine the method by which banks set their capital reserves for different types of lending. The Basel Accords revise the way commercial and residential real estate lending are treated. The changes could significantly curtail the flow of capital to real estate and harm the commercial and residential property market and property values. |
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| NAR Policy: |
| NAR supports the objective of aligning capital rules with risk and seeks to protect and enhance the flow of capital to commercial and residential real estate by making sure that the capital rules do not require excessive capital to be held for real estate loans. |
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| Legislative/Regulatory Status/Outlook: |
| The House Financial Services Subcommittee on Capital Markets and the Senate Banking Subcommittee on Securities and Investment held hearings on the Basel Accords in September 2006. NAR submitted regulatory comments letters on both the Basel I-A and Basel II proposed rules in March 2007. On December 7, 2007, the federal banking agencies (Federal Reserve, FDIC, OCC, and OTS) published a joint final regulation implementing the new capital framework. It is likely that Congress will continue its oversight of the implementation of the Basel Accords to fully gauge the impact these regulatory initiatives will have on the American economy, including the real estate industry. |
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