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Community Bank Bailout Among Details

Following a meeting among principal negotiators of the Wall Street bailout proposal, Rep. Barney Frank (D-Mass.) divulged a few details.

Community banks, many of which held large positions in Fannie Mae and Freddie Mac preferred stock, took a severe drubbing when those entities were nationalized.

"Anyone who had Fannie or Freddie preferred shares who suffered a loss because of a government action" will be able to write off their capital loss as an ordinary loss all in one tax year. That may be small solace for banks who lost the house, so to speak, but it may be enough to keep them alive.

The provision would apply to anybody or any entity that owned preferred shares. "It’ll be for individuals as well as for banks. It’s main policy impact will be on community banks, but we couldn’t just give it to them," he said. "There may be a limit of up to a billion dollars worth."

In terms of limits on executive compensation, Frank said that different executives would be treated differently based on the type of government rescure their bank required. "Ther’s buying equity, there’s buying assets, and there’s auctions," said Frank, referring to the separate types of action available to the government. "The question is, Which combination of several compensation restrictions apply to which banking activity?"

Frank also said that there was agreement that whatever oversight be put in place not slow the start of the program. "There was a great determination that whatever we do, not to hold back the implementation of the program. We’ve got some safeguards, but you don’t want the secretary to have to wait," he said.

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