Banks say a rule change on commercial real-estate lending will help the economy, but so far it is mostly helping the banks, the Wall Street Journal reported. Enacted in May, the complex change narrows the definition of which construction and development loans should be deemed as “high-volatility commercial real-estate” (HVCRE) loans. The change, little noted outside the banking and real-estate industries, makes it harder for regulators to classify such loans as particularly risky. That is important to banks because they must hold extra capital against those loans. Congress revised the standards for HVCRE loans as part of a new law easing bank regulations, and banks pushed for the change, arguing it would spur more lending. Yet the change hasn’t increased lending broadly thus far. Still, banks already are reaping the benefits: easier compliance, a boost to capital ratios, better returns on existing loans. Wells Fargo & Co., for example, has cut its HVCRE exposure by two-thirds, lifting a key capital ratio. Banks say the old rules were so onerous they curtailed legitimate lending. The change “will help out a lot of the small underserved communities, because they’ll be able to go to the local bank and get financing where they couldn’t before,” said James Kendrick, an executive for the Independent Community Bankers of America. Advocates of stricter financial regulation fear relaxing the standards could encourage banks to return to riskier lending practices of the financial-crisis era.
