Banking & Finance Law Report

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Newly Effective HVCRE Loan Rules

Lenders who finance commercial real estate exposures should be aware of new regulations that impose harsher capital requirements on certain “high volatility commercial real estate,” or HVCRE, exposures. In June 2013, the FDIC, OCC, and Federal Reserve jointly approved proposed rules intended to implement new international banking standards, known as the Basel III Capital Accords, as well as establish new risk-based and leverage capital requirements for financial institutions, as required by Dodd-Frank. The rules have been in effect for all banks since January 1, 2015, having applied to the largest banks one year prior.

Under the rules, an HVCRE exposure is defined as “a credit facility that, prior to conversion to permanent financing, finances or has had financed the acquisition, development, or construction (“ADC”) of real property,” if it fails to satisfy any of the following three capital requirements:…

RECOUPMENT AND SETOFF ISSUES FOR HEALTH CARE LENDERS

Health care lenders and others evaluating or relying on the financial strength of a healthcare provider need to think about the potential recoupment and setoff of claims against Medicare/Medicaid receivables of the provider. 

RECOUPMENT

Recoupment, which is the netting of two related claims which is the function of a single, unitary transaction between the parties, occurs in the normal course of business and is not stayed by the automatic stay in a bankruptcy proceeding. For example, if Party A sells 100 widgets to Party B, and Party B discovers that four of the widgets were not delivered, Party B will deduct (recoup) the invoice amount of each unit in making payment to Party A.

In dealing with Medicare/Medicaid recoupment issues in bankruptcy, two general approaches have been taken by the Circuit Courts of Appeal with respect to the netting of overpayments against accounts due to the provider.

In the Third Circuit, which includes Delaware, the Court has applied an integrated transaction test, which means generally that any recoupment of Medicare/Medicaid payments is viewed as yearly payments and therefore the government can only recoup overpayments against payments due for a single year. Most of the Circuit Courts have adopted a “logical relationship test” …

HEDGE FUNDS PUSH TO REMOVE THE SEC PROHIBITION ON GENERAL SOLICITATION AND ADVERTISING FOR PRIVATE OFFERINGS- COULD SMALL INSTITUTIONS ALSO BENEFIT?

The Managed Funds Association (which represents hedge funds, commodity pool operators, and similar institutions) has recently petitioned the SEC to remove the prohibition on general solicitation and advertising for "private" (i.e., not required to be registered with the SEC) offerings. A bill to that effect has also recently passed the U.S. House of Representatives. 

While hedge funds and other managed funds differ in many ways from small business and financial institutions, removing the ban on general solicitation and advertising has the potential to benefit both markets.   Small business and financial institutions should carefully consider whether supporting this regulatory change could result in a greater ability to raise capital. …

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