Basel III: What You Need to Know

The Basel Capital Accords have been around for over two decades. The Group of Ten countries first adopted the Basel Capital Accord in 1988 to ensure banks hold more capital for high risk loans under the presumption that it would prevent catastrophe global economic failures. There have been several stages of the Basel Capital Accord, including Basel II and Basel III.

Three U.S. federal agencies — Office of the Comptroller of the Currency, Federal Reserve System, and the Federal Deposit Insurance Corporation — have proposed rules based off Basel III and reforms required by the Dodd-Frank Act. CCIM Institute was among several commercial real estate organizations that submitted a comment letter (PDF) on the proposed rules.

Our concerns within the comment letter include the calculation of risk-based capital requirements and the amount of time allowed to review the Basel III proposed rules. Changes to high-volatility commercial real estate loans would impact loan availability. Further, small and large banks would have to take part in the weighting and calculation of risk-based capital requirements. Additionally, there are over 700 pages to review by early September 2012, which is not adequate for comprehensive review. This is particularly alarming with the potential impact these proposed rules may have on financial institutions, the real estate sector, and an uncertain economy.

UPDATE: Comment period has been extended until October 22, 2012.

UPDATE: On November 9, 2012, the banking agencies proposing Basel III rules announced the rules will NOT become effective January 1, 2013.

UPDATE: CCIM Institute participated in two coalitions submitting comments to the Senate Committee on Banking, Housing and Urban Affairs in preparation for the hearing titled "Oversight of Basel III: Impact of Proposed Capital Rules" on Nov. 14, 2012. Our concerns continue to be the unintended consequences for high proposed risk weights for certain commercial asset classes. Review the comment letters, NAR Basel III Letter and U.S. Chamber of Commerce Basel III Letter. On Nov. 28, CCIM and several other organizations submitted comments to leaders of the Subcommittee on Insurance, Housing and Community Opportunity, prior to their hearing on Basel III.