Banking regulators faulted

By MARGARET CHADBOURN Bloomberg News

July 9, 2009, 12:51AM

Federal regulators who are tightening examinations of banks amid the worst financial crisis in 75 years may be delaying the economic recovery by discouraging lending, lawmakers and bankers said.

“Regulators are clamping down and helping to make this recession more severe,” Sen. Bob Corker, R-Tenn., said during a Senate banking subcommittee hearing Wednesday.

U.S. and state agencies have closed 52 banks this year, the most since 1992, and the collapse of global credit markets led to almost $1.5 trillion of write-downs at global financial companies in the past two years. Banks have tightened underwriting standards after regulators encouraged limits on risk and raised capital requirements.

Bankers are concerned that regulators “second-guess their desire to make additional loans,” and have created “a very examination environment,” Jack Hopkins, CEO of CorTrust Bank in Sioux Falls, S.D., testified for the Independent Community Bankers of America.

“Regulators are a bit paranoid,” Sen. Jon Tester, D-Mont., said. “They don’t want to have a failure on their watch.”

Congress is considering proposals to overhaul financial regulations, and President Barack Obama called for streamlining bank rules.


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