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Federal Register / Vol. 86, No. 163 / Thursday, August 26, 2021 / Proposed Rules
Legal information: Jennifer Cohn, CohnJ@fca.gov, Senior Counsel, Office of General Counsel, Farm Credit Administration, McLean, VA 22102
5090, 720 2130440, TTY 703 883
4056.
SUPPLEMENTARY INFORMATION:
Table of Contents I. Introduction A. Objectives of the Proposed Rule B. Background II. Proposed Rule A. Scope of HVCRE Exposure Definition B. Exclusions From HVCRE Exposure Definition 1. Oneto Four-Family Residential Properties 2. Agricultural Land 3. Loans on Existing Income Producing Properties That Qualify as Permanent Financings 4. Certain Commercial Real Property Projects a. Loan-to-Value Limits b. Contributed Capital c. Value Appraisal d. Project 5. Reclassification as a Non-HVCRE
Exposure 6. Applicability Only to Loans Made After Effective Date C. Impact on Prior FCA Board Actions III. Regulatory Flexibility Act Analysis
I. Introduction
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A. Objectives of the Proposed Rule The FCAs objectives in proposing this rule are to:
Update capital requirements to reflect the increased risks that exposures to certain acquisition, development or construction loans pose to System institutions; and Ensure that the Systems capital requirements are comparable to the Basel III framework and the standardized approach the Federal banking regulatory agencies have adopted, with deviations as appropriate to accommodate the different operational and credit considerations of the System.
B. Background In October 2013 and April 2014, the Federal banking regulatory agencies FBRAs 1 published in the Federal Register capital rules governing the banking organizations they regulate.2
Those rules follow the Basel Committee on Banking Supervisions BCBS or Basel Committee document entitled Basel III: A Global Regulatory 1 The FBRAs are the Office of the Comptroller of the Currency OCC, the Board of Governors of the Federal Reserve System FRB, and the Federal Deposit Insurance Corporation FDIC.
2 78 FR 62018 October 11, 2013 final rule of the OCC and the FRB; 79 FR 20754 April 14, 2014
final rule of the FDIC.

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Framework for More Resilient Banks and Banking Systems Basel III, including subsequent changes to the BCBSs capital standards and BCBS
consultative papers.3
On September 4, 2014, FCA published in the Federal Register a notice of proposed rulemaking seeking public comment on revisions to our regulatory capital requirements.4 Our proposed rule was comparable to the final rule of the FBRAs and the Basel III framework, while taking into account the cooperative structure and the organization of the System. Beginning in 2010, System institutions had sought for FCA to adopt a capital framework that was as similar as possible to the capital guidelines of the FBRAs as revised to implement the Basel III standards. In particular, System institutions had asserted that consistency of FCA capital requirements with those of the FBRAs would allow investors, shareholders, and others to better understand the financial strength and risk-bearing capacity of the System.5
Included in the provisions we proposed to adopt was a 150 percent risk-weight for HVCRE exposures. Our proposed definition of HVCRE was very similar to the definition the FBRAs had adopted at the time. System commenters expressed concern about parts of the proposed HVCRE definition and asked us not to adopt the definition. We did not adopt the HVCRE provisions when we adopted our final capital rules because we wanted to further consider and analyze HVCRE.6 In the preamble to the final capital rule, we said that we expected to engage in additional HVCRE
rulemaking in the future.7
Beginning in 2017, the FBRAs issued several proposed rules on HVCRE
exposures, in an effort to address concerns with the original definition.8
On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act EGRRCPA 9 was 3 Basel III was published in December 2010 and revised in June 2011. The text is available at http
www.bis.org/publ/bcbs189.htm. The BCBS was established in 1974 by central banks with bank supervisory authorities in major industrial countries. The BCBS develops banking guidelines and recommends them for adoption by member countries and others. BCBS documents are available at http www.bis.org. The FCA does not have representation on the Basel Committee as the FBRAs do.
4 79 FR 52814.
5 See 79 FR 52814, 52820. FCA is not required by law to follow the Basel Committee standards.
6 81 FR 49719, 49736 July 28, 2016.
7 See supra footnote 6.
8 FCA staff submitted a comment letter in response to one of the proposals that communicated our concerns with a proposed exemption for agricultural land.
9 Public Law 115174, 132 Stat. 1296 2018.

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enacted, adding a new statutory definition that would have to be satisfied for an exposure to be riskweighted as an HVCRE exposure. On December 13, 2019, the FBRAs published a final rule, which became effective on April 1, 2020, implementing the EGRRCPA requirements.10
Many of the provisions in the FBRAs final rule address the concerns commenters raised in response to the FCAs 2014 proposed rule. Accordingly, to ensure that System institutions continue to hold enough regulatory capital to fulfill their mission as a Government-sponsored enterprise, we propose provisions that are, in general, similar to the FBRA provisions.
However, we propose differences in two general areas. First, in their rule the FBRAs clarified the interpretation of certain terms generally to be consistent with their usage in other FBRA
regulations or Call Report instructions;
while we do not propose different interpretations of these terms, we do not propose to refer to these FBRA
references, as we do not believe that is appropriate in our rules. Second, we propose some differences where appropriate to accommodate the different operational and credit considerations of the System, while continuing to maintain appropriate safety and soundness.
II. Proposed Rule Because of the increased risk in exposures that fall within the definition of HVCRE exposures, we propose, consistent with the FBRAs, to assign a 150 percent risk-weight to those exposures, rather than the 100 percent risk-weight generally assigned to commercial real estate and other corporate exposures under FCA
regulation 628.32f1. As discussed below, our proposed rule is similar to the FBRAs rule in most respects. In general, the same loan to the same borrowerwhether it is made by a commercial bank or a System institutioncarries the same risk and should be assigned the same riskweight. The proposed definition of HVCRE exposure is intended to capture only those exposures that have increased risk characteristics in the acquisition, development, or construction of real property.
As with the risk-weighting provisions of our capital rules generally, language in the proposed definition of HVCRE
exposure that refers to the financing of certain types of property or projects does not itself provide authority for an institution to engage in that financing, 10 84

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