On November 7, 2017, the House of Representatives, by voice vote, passed H.R. 2148, the Clarifying Commercial Real Estate Loans Act (the “Bill”). The Bill was reported favorably out of the House Financial Services Committee (the “HFSC”) with a bipartisan vote of 59 to 1. The Bill is now pending in the Senate where it has been referred to the Committee on Banking, Housing, and Urban Affairs. The prospects for passage in the Senate are uncertain.

If enacted, the Bill would add a new Section 51 to the Federal Deposit Insurance Act (the “FDIA”) to address the capital treatment under the U.S. Basel III capital rules of acquisition, development, and construction (ADC) loans characterized as high volatility commercial real estate (HVCRE) exposures. The capital rules currently in effect require that, under the “standardized approach,” as of January 1, 2015, HVCRE exposures must be risk-weighted at 150% rather than the 100% risk weighting accorded to other commercial loans. This higher risk weighting increases the capital that banks are required to carry against HVCRE exposures.