WASHINGTON, DC-A new bill introduced by US Reps. Ed Perlmutterand Mike Coffman might, if it is passed into law, alleviate some ofthe pressure small banks are experiencing with lending tocommercial real estate projects. The bill, HR 5249, Capital Accessfor Main Street (CAMS), will temporarily allow small banks withunder $10 billion in assets to amortize their losses on commercialreal estate over a seven-year period.

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Small banks have been decrying what they say has been astepped-up campaign by regulators to clamp down on all commercialreal estate lending--no matter how safe the transaction’sfundamentals or how well the bank is familiar with the borrower’sbusiness and balance sheet. Regulators, for their part, have beentaken to task for falling asleep at the wheel on this matter andare loathe to repeat the same mistakes.

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This bill would also address, to a certain degree, some of thedebt that is coming due in the next few years that will be unlikelyto find refinancing. Small banks have not been able to deploy theso-called ‘extend and pretend’ policies of larger banks andinstead, under current rules, have to write down this debtimmediately.

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This bill could free up significant amounts of capital in theshort term for additional CRE lending, Thomas Maxwell a partner inlaw firm Barnes & Thornburg’s Business, Tax and Real EstateDepartment who works with community banks, tells GlobeSt.com."Permitting banks to amortize over time rather than recognizeimmediate losses in their portfolios--in this case, their realestate portfolios--will allow them to maintain sufficient capitalto continue making loans rather than building up their reserves,"he says.

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That said, there are doubts in the industry as to whether thebill would have any impact on liquidity in the market. "I wouldcaution that amortizing commercial real estate losses isdiametrically opposed to the prevailing policy of regulators toaggressively require strict write-downs and write-offs ofcommercial real estate loans," Bowman Brown, chairman of Shutts& Bowen LLP in Miami, tells GlobeSt.com.

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There are other reasons as well why the bill is unlikely to havean impact, says Jeffrey Rogers, COO and president of Integra RealtyResources.

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First, he explains to GlobeSt.com, the bill is aimed atincreasing access to capital for small business in an effort tosimulate job growth. "Many small businesses have been lobbyingcongress to aid them in securing capital as the lack thereof ispreventing hiring and investment. If the bill is targetedcorrectly, there will be restrictions on the aid--such as loanguarantees--so that the loans will be funneled to smallbusinesses."

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Second, commercial real estate is still considered a risky assetclass to many small banks, he continues. Thus, even if the smalland community banks had more access to capital to lend, they arenot likely to increase their exposure to commercial real estate atthis time. "Most of the small banks are still working through theirtroubled portfolio of real estate related loans and the appetitefor additional exposure to CRE is just not there for many of thesebanks."

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Lastly, Rogers says, the FDIC is still actively shutting downsmall banks and will be for some time. "As with the priorgovernment sponsored programs, I am not confident that thegovernment will have the correct measures in place to properlytarget small businesses. Nevertheless, if small banks have theopportunity to become more stable through this bill without theneed to necessarily lend, they will take a conservative route andkeep lending tight especially real estate related loans until theywork through this crisis period," Rogers concludes.

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