The Federal Reserve plans to increase the risk sensitivity of mortgage capital requirements

The Federal Reserve is about to release bank capital proposals related to Basel III, and US lending institutions may face new mortgage capital requirements. Michelle Bauman, the Chief Banking Regulatory Officer of the Federal Reserve, stated that the proposal will increase the "risk sensitivity" of mortgage capital requirements in bank books by using loan to value ratios to determine applicable risk weights for residential real estate risk exposure, rather than uniform risk weights. Bauman pointed out that this adjustment aims to better match capital requirements with actual risks, support on balance sheet loans of banks, and may reverse the trend of mortgage lending activities shifting to non bank institutions over the past 15 years.