Logic In Wonderland (AKA Washington)

A faint wisp of sanity wafted through our nation’s capital today. The Office of the Comptroller of the Currency told the credit card companies and banks today that their proposal to defer their losses on credit cards was a non-starter.

As background, various big purveyors of credit card debt proposed that they write-off up to 40% of their credit card receivables and that the lucky recipients of their largess be excused, at least temporarily, of the need to pay taxes on this gift. In exchange for this gesture, the various creditors would not be required to recognize their losses until the remaining balances on the credit cards were paid off, assuming, of course, that ever occurred. Left unsaid was the rather obvious fact that the magic forty percent number is just about what they are going to have to declare uncorrectable regardless of whether or not their plan was approved.

The OCC saw through this subterfuge and in a letter today basically said, no way. Here is their logic:

“The OCC does not consider any plan that defers the timely recognition of loss as prudent, and any such proposal cannot be viewed favorably by us,” wrote Timothy W. Long, the OCC’s senior deputy comptroller for bank supervision policy. “Our long-standing policy is that banks are not allowed to attempt long-term recoveries while assets deemed uncollectible have not been accounted for as charge-offs and reported as losses. To do so compromises the integrity and transparency of financial statement reporting and public confidence in the banking system.”

I rather suspect that the OCC will be brought to heel. Nevertheless, when we write the history of this period I hope their is at least a footnote that notes that at one point in time a regulator tried to cling to logic.

Tom Lindmark

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