The Federal Reserve is set to unveil a significant proposal related to Basel III, which could impose new mortgage requirements on U.S. lending institutions. According to PANews, this development is anticipated to increase the risk sensitivity of capital requirements for mortgages on bank balance sheets. Michelle Bowman, the head of the Federal Reserve's bank supervision, indicated that the proposal might use loan-to-value ratios to determine the applicable risk weights for residential real estate exposures, rather than a uniform risk weight.
Bowman stated that this change could better align capital requirements with actual risks, support on-balance-sheet lending by banks, and potentially reverse the trend of mortgage activity shifting to non-bank institutions over the past 15 years.