From Aurora to Wheat Ridge and Arvada to Brighton, small businesses and small banks on Main Streets throughout the 7th Congressional District in Colorado are fighting hard as we inch our way forward on economic recovery. But it’s not easy. These small businesses and small banks are being asked to pay for the mistakes of speculators and gamblers far away on Wall Street. And that’s not fair. Responsible parties should clean up their own messes and pay for their own mistakes.
Small-business owners in Aurora, Arvada and Brighton recently told me they need our help now. Local farmers markets, ice cream and beauty parlors, flower shops and restaurants are the stable small businesses generating more than 50 percent of our nation’s annual GDP. They are responsible for nearly two-thirds of all new jobs, and they need access to credit to stock inventory, hire workers and weather the storm so they can innovate and grow and drive our economy forward. But they are at a logjam with small banks that can’t extend the credit they need.
Federal Reserve Chairman Ben Bernanke acknowledged last week that banks need to lend to small businesses. He stated, “Lenders should do all they can to meet the needs of credit-worthy borrowers. Doing so is good for the borrower, good for the lender and good for our economy.”
However, to fix banks facing a tough economy, the Federal Reserve, U.S. Treasury and other banking regulators are pursuing only three options: 1) force banks to raise new capital; 2) force banks to call in loans and stop lending to credit-worthy small businesses; or 3) force banks to close altogether. This approach is not working well on Main Street, where credit remains frozen and jobs are hard to come by.
During these unusual economic conditions, I believe there is a better way forward, a fourth option to get credit moving to small businesses: allow small banks to spread potential real estate losses over time, giving small banks and the small businesses they serve a foundation to build upon and an opportunity to work out their challenges over time, not instantaneously. This option was successful during the farm loan crisis in Colorado in the 1980s, as was a similar program using “net worth certificates” — which, according to Former FDIC Chairman Bill Isaac, saved the FDIC millions of losses during the 1980s.
The House recently passed the Small Business Lending Act, which included my plan. However, during the passage of the bill in the House, Bernanke, Treasury Secretary Tim Geithner and others raised concerns that allowing small banks to spread potential real estate losses over time might decrease transparency, and it might cause small banks to take on more risky investments. I disagree. This plan guarantees complete transparency of all accounting transactions by banks and continues to empower federal regulators to provide effective oversight.
My proposal allows critical capital levels and careful regulation to be maintained and for credit to be granted to qualified borrowers. It provides some time for a bank to manage problem loans versus the current practice of harsh, immediate write-downs that will sink many banks and the businesses depending on them when both can be saved.
I have confidence in the Main Street entrepreneurs, small businesses and the small banks serving them, as well as in the regulators’ ability to continue to do their jobs effectively.
Small-business owners and small banks are not looking for a handout. They are asking for a fair deal, to be able to compete and work out their difficulties over time, difficulties caused by irresponsible Wall Street speculators.
This plan is the responsible way to help small businesses weather the storm, set the foundation to rebuild Main Street, and create the jobs we need to work our way back to prosperity.
Democrat Ed Perlmutter represents Colorado’s District 7 in the U.S. House.
