Bank regulators unhinged

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By Sherry Robinson

During his State of the Union address, the President assured us his fiscal policies would stimulate bank lending to help businesses expand and create jobs. Obviously, the right hand isn’t talking to the left hand, and if they are, they don’t speak the same language.

Federal bank regulators, who failed to curb the excesses of the biggest banks, are now punishing the little guys. Your local community bank didn’t engage in the risky behavior that got us into this mess, but it’s now paying the price.

The red-alert was the closure of Charter Bank in Albuquerque and the agreement Los Alamos National Bank reached with the Comptroller of the Currency. Charter was a good bank. When customers, employees and business people raged that its demise was a travesty, they were right. Similarly, the Los Alamos bank is one of the state’s best and most innovative.

Every bank in the state is under regulatory pressure.

This is not a signal to Tea Partiers to strap on their guns and rail against the Obama administration. It was just as bad under President Ronald Reagan.

When I wrote last year that bank regulators would bear down on all institutions in the wake of the big banks’ lapses, I wasn’t clairvoyant – I’ve seen it before. In the mid-1980s, during another real estate “correction,” regulators cleaned out the shaky institutions. Then they went after everyone else – kicked assets and took names.

There are lots of ways to tell if a bank is sick. I’ll spare you the details of loan-loss reserves and such. Let’s just say that, compared to the rest of the country, our banks are in pretty good shape.

So, when a banker makes you a loan based on the value of the property and your credit history, and you make your payments, it’s all good. Supposedly.

Lately, federal regulators have forced banks to move perfectly good loans into the troubled-asset column, even when the borrower is making payments. They’ve questioned appraised values and substituted their own. They’ve forced banks to set aside larger reserves against possible losses. Instead of negotiating, they bludgeon bankers with cease and desist orders. The FDIC demanded premiums three years in advance.

And heaven help them if they have too much real estate on the books.

“This is wrong,” said Bill Verant, director of the state Financial Institutions Division and a regulator himself. “It’s a knee-jerk reaction.” Charter, he said, was a great institution. Its demise was the result of “draconian, arbitrary write-downs imposed by federal regulators.”

These actions are spooking lenders and reducing lending. “The combination is forcing banks to shrink balance sheets just as we need to get more money out there,” Verant said last week to a packed ballroom of developers and real estate professionals. “The idea of the corner bank that knows every customer is not just nostalgia – it will be critical to the recovery.”

“What can we do, other than cut our wrists?” asked one man.

Verant responded, “We’ve gotta wake up these people in Washington.” He suggested a storm of protest directed at the Congressional delegation.

From personal experience, I don’t have a lot of confidence in that avenue. Our elected officials don’t like to question the bureaucracy’s every decision, even when it’s playing God.

But three cheers for Lt. Gov. Diane Denish, who used her corner of the bully pulpit to write an open letter to Fed Chairman Ben Bernanke, the FDIC, the Comptroller of the Currency and the Office of Thrift Supervision.

“Federal field examiners, under pressure from regional offices, are more aggressive in examining commercial real estate loans and other assets,” she wrote. “This well-meaning but overreaching practice… will only trigger more community bank failures, further constriction of credit availability, and hamper economic recovery.”

© New Mexico News Services 2010