Capital
Consortium Issues Letter to Federal Regulators
Letter to Federal Banking
Regulators
- On January 12 the Consortium issued a letter to
the federal banking regulators. The letter to the Comptroller of the Currency, Federal
Reserve, Federal Deposit Insurance Corporation and the Office of Thrift Supervision
recommended that the agencies adopt the proposed risk weighting for Triple A rated
commercial mortgage – backed securities from 100 per cent to 20 per cent. In this
recommendation, the Consortium is proposing that the regulatory agencies carve out and
finalize a segment of a larger and controversial proposal dealing with recourse and direct
credit subsidies.
- Currently, all CMBS carry 100% risk weighting and
banks have to maintain 8% capital against the securities. A 20% risk weighting would
reduce the capital requirement to 1.6%. A 20% risk weighting would make top-rated CMBS
securities easier to sell and less costly to hold for issuing banks. The Consortium’s
rationale for supporting this carve out is based on the CMBS historical credit risk (they
have a long and successful performance record) and the change would substantially improve
the liquidity and marketability of such securities.
- In response, on February 25th the
agencies rejected the Consortium’s request for a rule based on only one of the
measures, saying that such a move would not produce a balanced approach to issues
surrounding securitization activity.
The Consortium continues to pursue its efforts to
get the initial carve- out approved and is now exploring legislative alternatives.
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