Brown: Relief From Fair Value “Essential For Community Banks to Survive”
Filed under: Fair Value Accounting, Generally Accepted Accounting Principles, Real Estate
In an opinion piece published in American Banker, president and chief executive officer of the Community Bankers Association of Georgia spoke in favor of current legislation that would “provide relief for real estate-related assets by allowing community banks to amortize losses on commercial real estate loans and ‘other real estate owned’ (repossessed properties) over 10 years for regulatory capital purposes.” The Communities First Act, first introduced to Congress in 2011, “provides a broad range of much-needed regulatory and tax relief for community banks and their customers,” said Brown.
Current mark-to-market rules under generally accepted accounting principles (GAAP) require the immediate recognition of losses.
Decoupling GAAP from regulatory accounting practices, says Brown, would allow community banks to more easily spread real estate losses over a longer period of time and give them better opportunities to work with borrowers rather than foreclose.
“Regulatory, tax and paperwork requirements disproportionately burden community banks, which lack the scale of larger institutions over which to spread legal and compliance costs,” Brown continued.
This legislation could stimulate a struggling economy by allowing small community banks to lend more easily to consumers and small businesses, many of which have limited funding options currently.