[Federal Register Volume 83, Number 246 (Wednesday, December 26, 2018)]
[Proposed Rules]
[Pages 66166-66167]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27786]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 3

[Docket ID OCC-2018-0026]
RIN 1557-AE48


Regulatory Capital Treatment for High Volatility Commercial Real 
Estate (HVCRE) Exposures

AGENCY: Office of the Comptroller of the Currency, Treasury (OCC).

ACTION: Notice of proposed rulemaking; correction.

-----------------------------------------------------------------------

SUMMARY: This document corrects OCC's Regulatory Flexibility Act 
certification for the proposed rule that was published in the Federal 
Register on September 28, 2018, entitled ``Regulatory Capital Treatment 
for High Volatility Commercial Real Estate (HVCRE) Exposures.''

DATES: The proposed rule published on September 28, 2018 at 83 FR 48990 
is corrected as of December 26, 2018. Comments must be received by 
January 25, 2019.

FOR FURTHER INFORMATION CONTACT: Carl Kaminski, Special Counsel, or 
Rima Kundnani, Attorney, (202) 649-5490 or, for persons who are deaf or 
hearing impaired, TTY, (202) 649-5597.

SUPPLEMENTARY INFORMATION: 

I. Background

    This document supplements the OCC's Regulatory Flexibility Act 
(RFA) certification for the notice of proposed rulemaking entitled 
``Regulatory Capital Treatment for High Volatility Commercial Real 
Estate (HVCRE) Exposures'' (proposed rule) published on September 28, 
2018, Federal Register Document 2018-20875 (83 FR 48990), by the OCC, 
the Board of Governors of the Federal Reserve System, and the Federal 
Deposit Insurance Corporation. The sections of this correction document 
are effective as if they had been included in the SUPPLEMENTARY 
INFORMATION section of the proposed rule.

II. Summary of Supplemental Language

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires an 
agency, in connection with a proposed rule, to prepare an Initial 
Regulatory Flexibility Analysis describing the impact of the rule on 
small entities (defined by the SBA for purposes of the RFA to include 
commercial banks and savings institutions with total assets of $550 
million or less and trust companies with

[[Page 66167]]

total assets of $38.5 million of less) or to certify that the proposed 
rule would not have a significant economic impact on a substantial 
number of small entities.
    In the OCC's portion of the SUPPLEMENTARY INFORMATION section 
titled ``Regulatory Flexibility Act Analysis'' of the proposed rule, 
``Regulatory Capital Treatment for High Volatility Commercial Real 
Estate (HVCRE) Exposures,'' the OCC stated that the proposal likely 
would impact a substantial number of small entities. However, the OCC 
determined that the impact of the proposal would not be economically 
significant. Therefore, the OCC certified, for the purpose of the RFA, 
that the proposed rule would not have a significant economic impact on 
a substantial number of OCC-supervised small entities.
    The United States Small Business Administration, which monitors 
compliance with the RFA, has asked the OCC to provide additional detail 
to support its certification. Therefore, the OCC is revising the 
administrative record to include additional information.

Correction

    In the third column on page 48996 and the first column on page 
48997, revise the section following ``B. Regulatory Flexibility Act 
Analysis'' to read as follows:
    ``OCC: The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., (RFA), 
requires an agency, in connection with a notice of proposed rulemaking, 
to prepare a Final Regulatory Flexibility Analysis describing the 
impact of the proposed rule on small entities (defined by the Small 
Business Administration (SBA) for purposes of the RFA to include 
banking entities with total assets of $550 million or less) or to 
certify that the proposed rule would not have a significant economic 
impact on a substantial number of small entities.
    As of June 30, 2018, the OCC supervised 886 small entities.\1\ 
Currently, 211 small OCC-supervised institutions hold high volatility 
commercial real estate (HVCRE) exposures and thus will be directly 
impacted by the proposed rule. Therefore, the proposed rule potentially 
affects a substantial number of small entities.
---------------------------------------------------------------------------

    \1\ The OCC calculated the number of small entities using the 
SBA's size thresholds for commercial banks and savings institutions, 
and trust companies, which are $550 million and $38.5 million, 
respectively. Consistent with the General Principles of Affiliation, 
13 CFR 121.103(a), the OCC counted the assets of affiliated 
financial institutions when determining whether to classify a 
national bank or Federal savings association as a small entity.
---------------------------------------------------------------------------

    The proposed rule would impact two principal areas: (1) The impact 
associated with implementing revisions to the capital rule to make the 
definition of an HVCRE exposure consistent with the new statutory 
definition and, (2) the impact associated with the time required to 
update policies and procedures and to re-evaluate HVCRE loan 
portfolios.
    As described in the Supplementary Information section in the 
preamble to this proposed rule, the OCC believes the change to the 
definition of HVCRE exposure would result in fewer loans being deemed 
HVCRE exposures. Therefore, the amount of capital required would 
decrease for impacted OCC-supervised entities.
    Further, the OCC believes no currently reported non-HVCRE 
acquisition, development, or construction (ADC) exposures would be 
reclassified as HVCRE exposures, and thus there would be no additional 
compliance burden to OCC-supervised entities for the non-HVCRE 
component of their ADC portfolios. The proposed rule would not require 
OCC-supervised entities to amend previously filed reports as OCC-
supervised entities adjust their estimates of existing HVCRE exposures. 
This would serve to minimize the compliance burden for OCC-supervised 
entities.
    Compliance burdens that OCC-supervised entities may face could 
include: (1) Updating policies and procedures to classify newly issued 
HVCRE loans; and (2) time spent re-evaluating existing HVCRE exposures 
in order to determine if any are eligible to be reclassified and thus 
receive a lower risk-weight of 100 percent. Based on the OCC's 
supervisory experience, OCC staff estimates that it would take an OCC-
supervised institution, on average, a one-time investment of one 
business week, or 40 hours, to update policies and procedures and to 
re-evaluate their HVCRE exposures for loans originated after January 1, 
2015.
    The OCC's threshold for a significant effect is whether cost 
increases associated with a proposed rule are greater than or equal to 
either 5 percent of a small bank's total annual salaries and benefits 
or 2.5 percent of a small bank's total non-interest expense. The 
estimated compliance costs of $4,680 per institution (40 hours x $117 
per hour) \2\ would not exceed either of these thresholds for a 
significant impact on any of the 886 OCC-supervised small entities.
---------------------------------------------------------------------------

    \2\ To estimate average hourly wages we review data from May 
2017 for wages (by industry and occupation) from the U.S. Bureau of 
Labor Statistics (BLS) for depository credit intermediation (NAICS 
522100). To estimate compensation costs associated with the rule, we 
use $117 per hour, which is based on the average of the 90th 
percentile for seven occupations adjusted for inflation, plus an 
additional 34.2 percent to cover private sector benefits.
---------------------------------------------------------------------------

    For this reason, the OCC certifies that the proposed rule would not 
have a significant economic impact on a substantial number of OCC-
supervised small entities.''

    Dated: December 18, 2018.
William A. Rowe,
Chief Risk Officer.
[FR Doc. 2018-27786 Filed 12-21-18; 8:45 am]
 BILLING CODE 4810-33-P