President and CEO Bob Broeksmit Letter to Federal Banking Agency Leadership on MBA's Opposition to Forthcoming Proposed Bank Capital Rule

WASHINGTON, D.C. (July 26, 2023) — MBA President and CEO Bob Broeksmit, CMB, released the following open letter to the federal banking agencies’ leaders expressing our opposition to the Basel “endgame” notice of proposed rulemaking (NPR) and urging the agencies to delay its release, pending more detailed analysis of the combined effects of the rule on the economy, and on housing and real estate finance markets specifically:  

Dear Banking Agency Leadership,

The Mortgage Bankers Association (MBA) strongly urges you to vote against the proposed interagency Notice of Proposed Rulemaking implementing the Basel III “endgame” rule, which is set for consideration on July 27. The rule is expected to impose a 15 to 20 percent increase in capital requirements for larger institutions.

Such a substantial hike will have both macroeconomic and sector impacts that could stunt economic growth and fundamentally shift what business lines mid-sized and regional banks will focus on. Capital rules of this magnitude should be accompanied by a quantitative impact study to assess both the macroeconomic and sector impacts, as has been done with previous Basel-related reforms.

We are particularly concerned about press reports of a sharp increase in risk weights for single-family mortgages – 20 percentage points above the levels in the Basel Committee framework. Higher capital in general, and sharply higher risk-weightings on single-family mortgages, could exacerbate already-challenging conditions facing the housing market. Importantly, we are also concerned about the combined effect of the banking regulatory framework for housing and rental housing supply. Specifically, the proposed Community Reinvestment Act overhaul combined with the proposed capital standards will restrict the creation of new affordable housing units, in contrast to the Administration’s stated priorities.

Given ongoing housing affordability and supply challenges, the banking agencies must conduct the analysis needed to avoid precipitating a withdrawal of support for real estate finance markets from the largest providers of capital in the country. While it has been suggested that a phased implementation will minimize the impact, we know from prior experience that investors and markets will react immediately to such significant capital changes, and banks will be forced to respond to that pressure in real time. The economic impact cannot be mitigated by phased implementation alone.

MBA strongly opposes this NPR and urges the banking regulators to delay its release until the necessary quantitative impact study (QIS) has been completed, a review of the combined effects of regulatory changes on the creation of affordable rental housing has been conducted, and appropriate adjustments incorporated into a proposed rule.