The Federal Reserve is preparing adjustments to the capital requirements imposed on American banks to encourage the granting of real estate credit in the United States. The signal was made this Monday (16) by Michelle Bowman, vice president of the Fed for supervision, according to a report from Financial Times.
The initiative comes amid pressure from Donald Trump’s government for a review of prudential rules that, in the White House’s assessment, would be moving credit outside the traditional banking system. The proposal is to recalibrate standards considered excessively strict for operations linked to the mortgage market.
According to Bowman, the central bank is studying two regulatory changes designed to increase banks’ interest in the origination and management of housing loans. The authority stated that the changes could reverse the migration of mortgage activity to non-bank institutions, a trend observed over the last 15 years.
Take advantage of the stock market rise!
The numbers she cited show the scale of this structural change. The participation of banks in granting new residential financing fell from 60% in 2008 to 35% in 2023. In the same period, specialized companies, such as Rocket Mortgage and CrossCountry Mortgage, expanded their presence in the sector.
According to Bowman, current regulatory treatment imposes capital requirements that are disproportionate to the risk involved in mortgage operations, making the activity less attractive for large banks. Among the points under analysis is the treatment given to so-called mortgage administration rights — assets that remain with banks even after the sale of loans to agencies such as Fannie Mae and Freddie Mac.
Today, these exposures can receive a 250% risk weight for regulatory capital purposes. The Fed is considering eliminating the obligation to deduct these assets from capital and reviewing the way risk is calculated. Another change studied involves allowing the required capital to vary depending on the risk of the operation, taking into account, for example, the relationship between the value of the loan and the value of the property — a common practice in other jurisdictions.
Continues after advertising
The discussion also takes place in the context of the international Basel rules, whose implementation process in the USA had been the target of criticism from the financial sector. Treasury Secretary Scott Bessent has already advocated modernizing the capital framework to avoid so-called “regulatory arbitrage,” which would push credit to less regulated institutions.
Bowman stated that increasing banks’ participation in real estate credit does not compromise the soundness of the financial system. For the Fed, it is possible to make greater credit supply compatible with maintaining banking stability.
Any changes still depend on public consultation and formal deliberation by the monetary authority. For the market, the signaling represents an indication that the central bank may adopt a more favorable stance towards the financial sector, with potential impacts on credit, the real estate market and the shares of banks listed on Wall Street.
