Smaller banks could catch break from Main Street act
Banks could have an option to hold on to more of their capital for a longer period of time if a bill sponsored by Colorado Rep. Ed Perlmutter proves successful.
House Resolution 1356, which is supported by House members on both sides of the aisle, would provide banks with amortization authority for purposes of capital calculation. Under the bill, an insured depository institution with assets of less than $10 billion could choose to amortize any loss or write-down with respect to a commercial real estate loan or other real estate owned.
The amortization would have to occur on a quarterly straight-line basis over a seven-year period, beginning with the month in which the loss or write-down occurs, according to the text of the bill.
The proposed legislation would temporarily allow community banks to spread out a portion of their commercial real estate loans, enabling these banks to make more liquid capital available to make more responsible loans.
Loans made during a three-year period beginning on the date of enactment of the act would be eligible for extended amortization.
Banks with more than $10 billion in assets would still be subject to current rules, which require that real estate loan losses must be written down all at once.
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