High Volatility Commercial Real Estate
Basel III also amends the risk weights applied to certain riskier bank assets in the calculation of the new capital ratios. For example, commercial real estate loans that are high volatility commercial real estate (HVCRE) carry a higher risk weighting under the new rule. Community banks must determine whether they have any HVCRE loans in their loan portfolios. HCRE loans are acquisition development and construction (ADC) loans, less those meeting certain criteria (see diagram below).
HVCRE loans carry a 150% risk weight under the new rules, whereas other CRE carries a 100% risk weight. Most bank systems do not have an HVCRE category, so banks may need to dig into their files to determine whether they have any HVCRE loans.