FDIC Action: Delaying the Recovery?
On Halloween, Douglas McIntyre reported in Daily Finance on a recent action by the FDIC that takes a more “liberal view” of what constitutes a nonperforming commercial real estate asset. As reported in wsj.com, the change allows “banks to keep loans on their books as "performing" even if the value of the underlying properties have fallen below the loan amount.” As McIntyre puts it, "[the] change in how the current regulations should be interpreted appears to be a fudging of the way in which federal agencies look at bank financial statements. Loans that are "nonperforming" may be restructured, but many are likely to lose a great deal of their value in the process. The FDIC appears simply to be dealing with losses that would be incurred in the normal course of business by pushing the true accounting for them into the future."
While this may help banks in the short term (and the FDIC, who might otherwise have to insure deposits at these banks should they fail), it seems dealing with these assets for what they truly are might get us to a market correction more quickly, get the assets into the hands of those that can re-develop them, and get that deal flow I mentioned in a previous post underway. Do you agree? For a lively discussion, visit the comments section of the wsj.com article. I don't mean to infer that this would be a painless process for anyone involved, but the faster we can get a recovery in commercial real estate underway, the better for everyone.
