This legislation might as well be called "The Kick the Can Act" and for once, its backers aren't ashamed to admit it. In fact, they're damn proud of it. It's the whole point.
The issue in question: commercial real estate. The question at issue: would the economy benefit if today's CRE losses were pushed out a few years?
A trio of Colorado congressmen — Democrat Ed Perlmutter and Republicans Mike Coffman and Scott Tipton — say the answer is yes. They're sponsoring the Capital Access for Main Street Act, a bill that would let community banks with less than $10 billion in assets amortize losses on commercial real estate for seven years.
The hope is that the bill would free up capital that would otherwise be eroded by losses, allowing community banks greater capacity to lend.
"It is a bill that helps small businesses access the capital that they need to get through the tough times and keep their employees working," says Leslie Oliver, a spokeswoman for Perlmutter.
"The policy … has been that the first loss is the best loss, but our feeling is that we really have to help people out," Oliver adds. "Rather than rip the band-aid off, if we prolong the situation we might be able to provide meaningful help to our small businesses."
Paul Merski, a senior vice president and chief economist for the Independent Community Bankers of America, says the amortization technique would give small banks room to work out problems and perhaps give the property's underlying value more time to recover, which could result in smaller losses. "So long as they are able to remain viable, why not spread out the lump?" he says.
Merski adds it could be a useful alternative to save capital since so many small banks are unable to find new investors. "There is virtually no private capital for small and midsize banks," he says.
Amortizing losses would make finding capital harder, say regulators and investment bankers. Earlier this month, George French, deputy director of policy and examination oversight for the Federal Deposit Insurance Corp., testified before the House for a separate bill that changing the policy for capital and nonaccrual loan treatment would be damaging to the industry.
