Will This Help Multi-Family Apartment Financing?

Commenter John has been scolding me over the past year to blame lending restrictions for the failure of apartment construction to keep up with the surge in demand for apartments and multi-family housing.

I am hoping that this loosening of Basel III liquidity requirements will help do the trick, and will post John’s response if he cares to write one:

Global central bank chiefs gave lenders four more years to meet international liquidity requirements and watered down the measures in a bid to stave off another credit crunch.

Banks won the delay to fully meet the so-called liquidity coverage ratio, or LCR, following a deal struck by regulatory chiefs meeting yesterday in Basel, Switzerland. They’ll be able to pick from a longer list of approved assets including equities and securitized mortgage debt as they seek to build up buffers of liquidity for use in a financial crisis.

“This was a compromise between competing views from around the world,” Bank of England Governor Mervyn King said at a briefing following yesterday’s meeting. King chairs the Group of Governors and Heads of Supervision, or GHOS, which decides on global bank rules. “For the first time in regulatory history we have a truly global minimum standard for bank liquidity.”

Banks and top officials such as European Central Bank President Mario Draghi pushed for changes to the LCR, arguing that it would choke interbank lending and make it harder for authorities to implement monetary policies. Lenders have warned that the measure might force them to cut back loans to businesses and households.



  1. It strikes me that announcements like this demonstrate how little awareness the political class has of the costs and benefits of meeting intersecting policy goals.

    After 4-5 years of the Elizabeth Warren/Barney Frank crowd hyperventilating about the actions of banks leading to hyper-velocity in the financial system and a high risk of catastrophic collapse–policymakers come to the realization that they can’t have the economic growth they want at the speed they want without high velocity driven by banks.

    Tough call–but I guess it was easier to complain a few years ago. While the rules will likely “increase the amount available for lending” they will also increase systemic risk. Any doubt the rules will be “extended” in four years?

  2. Don’t remember Warren making that argument, but Frank and Chris Dodd were 100% behind Fannie and Freddie loading up on risk to drive the real estate market. It was one leg of the 10-legged financial disaster we had on our hands. Both should be strung up for what they did to our financial system and our country (along with Greenspan, Paulson, and a host of others).

    Basel III wasn’t what I was referring to. although it is an issue. The issue at hand is bank regulator conduct. Rightly or wrongly (it doesn’t matter for this discussion), regulators have gotten hammered over poor asset quality and the real estate bubble, and their lack of management of the industry during the run-up. Their response to this is to turn around and hammer banks in the other direction.

    We’re in the classic ‘pendulum’ theory: regulators were far too loose before the blowup, and are now far to tight (follow the pendulum swing). Regulators are preventing good deals from getting done because bankers don’t want to put up with their insanity. Instead, banks are simply buying US Treasuries instead.

    Obama needs banks to buy Treasuries right now to help keep rates artificially low (Jon is wrong on rates, there is no free market for US Treasuries right now, it’s as manipulated as it’s ever been in the history of the country). Therefore, bank regulators keep the heat on, banks don’t lend, Obama gets the cash he needs to fund deficits, and the recovery gets postponed.

    Add Basel III to the mix, especially its impact on small and medium sized banks, and you have a recipe for nothing.

    • Jon Geeting says:

      “rates artificially low” sounds like you’ve been reading Zero Hedge too much. There is no “artificially”. The central bank controls interest rates. Those are the rates.

      • Ok, back to high school…..

        The Fed sets short term rates and influences/manipulates long term rates. It uses tools like asset purchases, reserve requirements, and strategies like QE and Operation Twist to manipulate the long end of the curve.

        Here’s a quote from a Fed statement in September 2012, when it announced it would continue to purchase $40 billion of MBS monthly:

        “These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.”

        Now add into the mix that Obama will not permit banks to lend, and instead is forcing them to purchase Treasuries, and you have a tremendous amount of manipulation going on. That manipulation is keeping rates artificially low.

        • Jon Geeting says:

          We’re not disagreeing about what the Fed is doing. I’m disagreeing that this means rates are “artificially” low. As if it’s possible for there to be some “real” rate unaffected by the Fed’s policy stance.

          • If Obama was permitting banks to lend, that would mean less demand for Treasuries, which in turn means upward pressure on rates.

            Here’s a good article from Bloomberg on what banks are doing:


          • Jon Geeting says:

            But then the Fed could just offset the upward pressure on rates…

          • Ah, more manipulation!

            Here’s the trick though Jon – if banks are lending, that means the economy is improving, and there would be no need to force rates lower.

          • Jon Geeting says:

            It’s not manipulation though. The correct stance for monetary policy is relative to what unemployment and inflation look like. The more plausible argument is that the Fed is manipulating the economy with a too-tight policy stance, since unemployment is high and inflation is very low.

            The whole point of all this is to induce banks to lend.

          • Agreed on the point – now you need to get Obama to stop standing in the way of bank lending.

  3. Warren focuses on the behavior of banks towards consumers, particularly the danger of fraudulent loans, which is amplified when banks package bad loans into mortgage-backed securities. AIG, as an insurance company, is the worst case scenario of this kind of gambling.

    For better or worse, using financial innovation to build up bank reserves does allow more money to be lent into the system. If you have a process that ensures that the original underlying loans are “quality” then the risk of using mortgage-backed securities is lower. But if you have a process to ensure loans are “quality” that by nature means that some loans aren’t being made, which may mean the supply of MBS is also lower.

    I actually agree with Warren for the most part, and think she brings a valuable perspective. But there is a cost to be paid on the other side if we ask banks to lend at more historically typical levels.

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