(Risk) Weight Reduction – March 30, 2026

CREFC and the Real Estate Roundtable have unpacked the new bank capital proposals

Two long-awaited proposals for reforms to bank capital requirements were issued earlier this month by the three federal agencies responsible for regulating lenders: the Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency. Each might be compared to arriving home after an extended overseas trip, in that there’s a lot to unpack. The standardized approach proposal runs to more than 430 pages; the Basel III proposal is nearly three times that length. 

Fortunately, the CRE Finance Council and the Real Estate Roundtable have done a great deal of the unpacking for you. CREFC notes that the standardized approach proposal would revise the U.S. standardized approach, which applies to most banks, to better align capital requirements with the risk of traditional lending activities.   

Meanwhile, the Basel III proposal seeks to implement the 2017 international Basel agreement on bank capital requirements. It would revise the risk-based capital requirements that apply to the largest, most internationally active firms and simplify the framework by subjecting firms to a single set of risk-based capital calculations, says CREFC.  

The updated Basel III proposal replaces a 2023 version, which the industry opposed. The Roundtable gave a thumbs-down to the 2023 proposal due to its “potential negative impact on available credit capacity for commercial real estate transactions, market liquidity, and economic growth.” 

CREFC notes that the standardized approach proposal recommends that risk weights for non-construction commercial real estate loans decrease from 100% to 95%. Securitization risk weights also would decline under this proposed framework.  

Additionally, the proposal reduces the minimum risk weight for senior securitization positions from 20% in the current standardized approach to 15%. The threshold-based deduction of mortgage servicing assets (MSAs) has been removed. All MSAs would receive a 250% risk weight under the proposal, according to CREFC. 

The Basel III proposal goes into “significant detail” on the treatment of CRE, including the definition of what constitutes regulatory commercial real estate exposures and accompanying risk-weights, CREFC says. It allows for more granular capital treatment than the standardized approach. 

In an overview of the Basel III proposal, the Roundtable sums up key themes. They include the following: 

• The revised proposal would reduce capital requirements for the largest U.S. banks by 2.4% overall. 

• The package would also replace the dual-track capital framework for the largest banks with a single approach, revise the G-SIB surcharge, and lower risk weights for mortgages and mortgage servicing assets. 

• Regulators said the changes are intended to align capital with risk better, preserve safety and soundness, and support lending and other financial intermediation activities across economic conditions.  

Unfortunately, the new Basel III framework retains a component that CREFC found problematic in the 2023 version. “Although common mezzanine/SPE financing structures are economically equivalent to first-lien lending, they continue to be penalized under a definition that requires a direct property security interest,” CREFC says.

It’s to be hoped that this and any other objectionable provisions of the new proposals can be ironed out with enough industry input. CREFC and the Roundtable encourage member participation in the public-comment period, which runs through June 18 for both proposals.