Potential Relief from Loan Losses for Regulatory Capital Calculations

5/13/2010

By Charles J. Garrison, CPA

Representatives Mike Coffman and Ed Perlmutter, both of Colorado, recently introduced a bill that would allow institutions with total assets of less than $10 billion to amortize certain losses over seven years for regulatory capital purposes. H.R. 5249, or the “Capital Access for Main Street Act of 2010” (CAMS) would allow these smaller insured depository institutions to “choose to amortize any loss or write-down, on a quarterly straight-line basis over the 7-year period beginning with the month in which such loss or write-down occurs,” according to the text of the bill.

Losses or write-downs are those incurred with respect to 1) a loan secured by commercial real estate; or 2) other real estate owned. An “insured depository institution” is one defined in the Federal Deposit Insurance Act as any bank or savings association the deposits of which are insured by the Corporation (FDIC). The proposed effective date is for capital calculations under the Consolidated Reports of Condition and Income (Call Reports) made for losses and write-downs that occur during the 3-year period beginning on the date of enactment of the Act.

CAMS is intended as an amendment to the proposed regulatory reform bill currently under debate in the United States Senate when similar legislation is undertaken in the House. With the recent introduction of the measure, it is unclear as to the amount of support the bill will garner.