US real estate finance leaders are concerned the collapse of Silicon Valley Bank (SVB) will lead to new regulations on smaller or regional banks that will have a detrimental impact on lending.
In a panel session on trends in US real estate and capital markets at the MIPIM international real estate event in Cannes last week, representatives of major asset management firms and banks cautioned against regulatory action targeting banks which had fallen under the threshold for having to adhere to capital requirements brought in after the 2008 financial crisis as part of the Dodd-Frank Act.
"I hope from a policy perspective there is a recognition of the importance of some of the smaller banks to the structure of the US economy," said Bradley Weismiller, managing partner, real estate capital markets, for Brookfield Asset Management.
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"The question is what happens next in terms of how regulators react to it. My hope is they realize this is a pretty specific situation and don't just dump another set of heavy regulations on all the banks in the US," said Michael Lascher, senior managing director for Blackstone.
"Whenever something like this happens both bankers and regulators go into a panic. The fear is there will be an overreach in terms of regulatory action," echoed Kwasi Benneh, managing director and head of North America commercial real estate lending for Morgan Stanley. "Regional banks play a very large role especially in real estate markets and so anything that happens that restricts lending by the regional banking sector is going to affect all of us collectively."
The panel members admitted it is inevitable that regional banks will come under more scrutiny and face more oversight from Washington following the SVB bail-out, however.
"Not all banks are the same, but the natural outcome is there is going to be more regulation of retail banks, regional banks and small banks and they will face higher capital requirements," said David Bouton, managing director and co-head, CMBS and real estate finance, at Citi.
Enhanced regulation of banks such as SVB may have a cooling effect on lending that will hit small business and entrepreneurs, warned David Forti, co-chair of global finance and real estate at law firm Dechert LLP.
"When you think of some of the services these banks offer to small businesses getting started, if you overbear them with regulatory burdens it's going to be hard to go out and get a loan to start a business, so it's an area of concern," he said.
Under the Dodd-Frank rules, banks with $50 billion in assets were subject to more strenuous capital and liquidity requirements, but a reform in 2018 increased the asset threshold to $250 billion, thereby relaxing the regulations for smaller and medium-sized banks. SVB, the 16th largest bank in the US, had approximately $209 billion in total assets and $175.4 billion in total deposits.