Small-Business Lenders Brace for Law's Tough Reporting Rules
Franzoni, Lauryn, American Banker
Small-business lenders are worried they will be overwhelmed by provisions in the new banking law that require them to compile detailed reports on their loan portfolios.
Though banking agencies have not yet spelled out the requirements, the Federal Deposit Insurance Reform Act of 1991 sugests that banks will have to report on both the quality and content of loans to farmers and small-business owners. The legislation requires reporting of the number and dollar amount of small-loan portfolios as well as chargeoffs, interest income, and fee income.
Bankers, saying they have never before compiled the data in comprehensive form, are particularly worried about finding a format in which to report interest and fee income.
Compliance with the new legislation will be "a nightmare," predicted Paul B. Brawner, a senior vice president at Huntington National Bank and chairman of the American Bankers Association's executive committee on small business banking.
"To create any consistency of information, and even to make regional comparisons, will require Herculean effort," Mr. Brawner said. "It's difficult to arrive at any consistency because our applicants are so diverse."
Echoing sentiments of mortgage lenders whose lending decisions have recently been exposed to public light, Mr. Brawner also worried about the use that regulators will make of the data.
Bankers are still hoping to influence regulators, who are turning the legislation into policy. The banking agencies are expected to put proposed rules out for comment by midsummer, giving banks probably another year before they will have to comply.
Despite bankers' objections, some people close to the banking world say the public will benefit from the upcoming disclosures.
Cynthia Glassman, the director of research at Furash and Co., a bank consultant in Washington, said the legislation was aimed at concerns by some politicians about banks' control over small businesses.
"Most other borrowers have access to a variety of sources, [but for] small businesses there are very few alternative sources of funds," Ms. Glassman said. She added that Congress also was worried that the trend toward bank consolidation could further tighten credit for farmers and entrepreneurs.
"Small business is the only product market where a lack of competition becomes critical," said Ms. Glassman, a former economist at the Federal Reserve Board.
The Department of Justice, she added, might have played a role in writing the legislation to ensure continued competitive markets.
Other analysts, however, said that small banks will find the new legislation particularly onerous. Small business lending comprises the bulk of the commercial loan portfolio at many community-size banks, the institutions that are least likely to have the computer sysstems and personnel to compile the reports.
The impetus for the legislation - buried in sections 122 and 477 of the banking bill - came from Rep. Richard Neal. The western Massachusetts Democrat was responding to complaints from constituents about banks withholding credit from small businesses, his staffers say.
Huntington's Mr. Brawner suggested that the whole basis for the legislation is faulty. …