Magazine article American Banker

Lawmakers Worry That Regulators Are Creating a California Crunch

Magazine article American Banker

Lawmakers Worry That Regulators Are Creating a California Crunch

Article excerpt

WASHINGTON - A House subcommittee is concerned that bank examiners are doing to California what they [ILLEGIBLE WORDS] England - reducing [ILLEGIBLE WORDS] ability by imposing higher [ILLEGIBLE WORD] necessary capital standards.

In a letter to the three bank regulators, Rep. John M. Spratt, D-S.C., and Rep. Christopher Cox, R-Calif., are asking for data on the number of California institutions under orders to increase capital above levels required by law.

"We have concerns about the broad imposition, during a time of economic downturn, of capital requirements above the regulatory minimums through supervisory orders," the two said in the letter addressed to Comptroller of the Currency Eugene A. Ludwig.

Suspecting a Parallel

Such requirements "may have aggravated the credit shrinkage in" New England, the two wrote. "We are now interested in whether there might have been any similar bank supervisory pattern in California."

The two lawmakers are the chairman and ranking Republican, respectively, of the House Government Operations sub-committee on commerce, consumer, and monetary affairs.

The panel this week issued a report concluding that New England was the only region significantly affected by a credit contraction that had its roots in a lack of supply, rather than weak demand.

For much of the rest of the country, the report said, weak credit demand by business was responsible for the contraction.

Part of the cause, the report concluded, was tough new capital standards mandated in the 1991 Federal Deposit Insurance Corporation Improvement Act.

In particular, risk-based capital, which requires more capital for commercial loans than other types of credits, removed incentives to lend to small business.

But the problem was made worse by the decisions of examiners to raise capital requirements at individual institutions to levels well above the regulatory minimums. …

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