Magazine article Independent Banker

Examination Overkill

Magazine article Independent Banker

Examination Overkill

Article excerpt

Over and over, lawmakers and administration officials have urged financial institutions to increase their lending activity to help refuel our moribund economy. And ICBA has widely and passionately delivered the message throughout Washington and the nation that community banks did not cause the subprime lending and financial markets problems. We have worked diligently to differentiate Main Street from Wall Street and to make clear that the great majority of community banks use sound lending practices, are well-capitalized and are ready to help our nation recover.

Yet ICBA continues to receive reports of field examiners unreasonably demanding write-downs and reclassifications of viable and current commercial real estate loans and other assets. Some examiners are questioning long-established lending practices and substituting their judgments for those of experienced appraisers and bankers. Despite Washington's wishes, this regulatory overkill is creating problem loans where none should exist, and it is wiping away community bank earnings and capital cushions, making a difficult lending environment even worse.

During the past several months ICBA has alerted lawmakers and federal banking regulators to this problem. ICBA leaders have testified before Congress calling for more flexible and reasonable examination policies and greater forbearance, particularly with respect to real estate lending. We've written formal letters urging modifications not only of examination practices but of absurd mark-to-market accounting rules that exacerbate this situation. And ICBA leaders have discussed the problem in face-to-face meetings with agency officials at the highest levels.

Obviously, community bankers expect field examiners will be more thorough and careful given the credit downturn. But ICBA has been outspoken in explaining that adversarial or hostile examination attitudes are not mere inconveniences. …

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