California bank and thrift executives, seeking to keep credit flowing to riot-damaged businesses, are pressuring government regulators to allow easier terms for such borrowers.
That was a main topic of a private meeting on Friday in Los Angeles between bank and thrift executives, Treasury Secretary Nicholas F. Brady and various state and federal bank regulators based in California. Meeting participants said regulators did not commit yet to any program.
One of the main concerns of bankers--especially those from small institutions--is that regulators may not allow enough flexibility to give breathing room to borrowers who cannot immediately pay back their loans because of riot-related problems.
Banks and thrifts usually must deal with troubled loans by setting aside money to cover potential losses and by applying payments toward the loan principal rather than counting it as income--which in effect lowers their profit and capital. Banks would like to grant more liberal repayment terms to riot-damaged borrowers and not have to count those loans as troubled.
Bankers are arguing that some smaller institutions could suffer crippling losses if forced to abide by existing policies on troubled loans. Also, they argue, failing to give banks any flexibility will choke off loans to customers needing to rebuild.
According to participants in the meeting, state Banking Supt. James E. Gilleran suggested that regulators deal with the issue case by case. But bankers disagreed, saying that would be too tedious. They suggested a blanket policy allowing healthier banks and thrifts to grant breathing room to borrowers.
Brady is expected to receive recommendations on Monday from a special task force of regulators formed earlier this week. In a memo sent to top regulators, Brady suggested that they look for guidance from "economic disturbances related to catastrophes such as Hurricane Hugo, the San Francisco earthquake and the recent Chicago flooding."