At first glance, those outside the banking industry in
Oklahoma may find it hard to find sympathy for bankers who
complain that excessive federal regulation has put a stranglehold
on their ability to function in the marketplace.
After all, most Oklahoma banks reported strong, even record,
profits during 1992.
But those on the outside looking in also complain that banks
are not making the kind of loans they once did. On that one
point, both sides agree.
Bankers say they are still in the business of making loans,
but loan demand among qualified borrowers is soft. Individuals
and companies both are concerned with paying off debts, not
incurring more. Historically low interest rates also give banks
very little incentive to book new loans that don't meet high
standards. This has led to an unusually high percentage of bank
assets that have been placed in no-risk government securities
rather than in loans.
Small business owners, by contrast, have said their demand for
loans has not lessened. They want and need loans, but bankers
won't make them. They say the only ones who can get loans are
those who can document that they don't need them in the first
Character lending is what many small business owners seek.
This is the traditional type of lending in which bankers extend
credit based on the judgment of the individual as well as other
risk assessment factors.
However, banks often are prohibited from operating with that
human touch. Regulators require many loans to be backed by a
secondary source of repayment and at least three years of
demonstrated business experience. Those requirements can be
deadly for the entrepreneur or the successful new business owner
who needs to expand to meet the demands of his growing customer
The restoration of character lending is one thing Oklahoma
bankers are calling for as they participate in the industry's
national "Cut the Red Tape Week."
They also seek to be more competitive with other types of
financial institutions which are not required to comply with so
Enactment of the laws creating many of the rules governing
banking is rooted in part in what happened in Oklahoma between
1982 and 1992 when the bottom fell out of the economy. Banks,
like everyone else, crashed and burned right and left. What had
been inconceivable in the heady days of the boom _ a bad real
estate loan, oil prices plunging _ soon became hard, cold
The severe economic problems brought to light the excesses of
the likes of Penn Square Bank and numerous savings and loans
until outraged politicians created laws to make sure those abuses
never happened again.
Out of that environment came such laws as the Financial
Institutions Reform, Recovery Enforcement Act of 1989, known to
bankers as FIRREA and to the public as the "savings and loan
bailout bill" and then the Federal Deposit Insurance Corp.
Improvement Act of 1991, for which regulations are still being
These laws and many before them have mandated to a large
extent what banks can do and how they can do it. They tell banks
when they have to have appraisals, when they have to get new
appraisals, who can do the appraisals, which bank policies must
be formalized in writing, how much money and under what
circumstances they can lend to a business owner who sits on the
board, when to report cash transactions to the Internal Revenue
Service and what information to include, how to track loans that
have been funded, how to disclose credit terms and even where the
FDIC logo must be displayed.
Some of the laws go to the heart of the safety and soundness
of the individual banks, the banking system and the government
backing that their deposits have. Others are sidelights to those
A study conducted for the Independent Bankers Association of
America by the Grant Thornton accounting firm categorized 13
federal regulatory areas which the nation's 9,682 locally owned
and operated institutions found most onerous. …