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Mixed Messages From the Top

By: Bill Poquette

Acknowledging mixed messages from top regulators and examiners in the field, Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair urged members of the Independent Community Bankers of America at their annual convention in Phoenix to keep lending — prudently. Also acknowledged was the crucial role community bankers play in their communities and the overall economy.

The ICBA, for its part, included in its list of 2009 policy priorities “Urging a change in the regulatory environment so over-zealous examiners do not stand in the way of sound community bank lending that can help in the economic recovery effort.”

“We are sensitive to this issue,” said Bernanke, “which is why last November the agencies jointly issued the ‘Interagency Statement on Meeting the Needs of Creditworthy Borrowers.’ In that statement, we noted that continuing to lend in this environment is not inconsistent with maintaining good risk management and high underwriting standards. For example, we emphasized that, while rectifying past shortcomings in underwriting standards and other aspects of risk management, banks can and should continue to provide loans to creditworthy customers.

“We have directed our examiners to be mindful of the pro-cyclical effects of excessive credit tightening,” Bernanke continued, “and to encourage banks to make economically viable loans, provided such lending is based on realistic asset valuations and a balanced assessment of borrowers’ repayment capacities. Across the Federal Reserve System, we have implemented training and outreach to underscore that direction.

Bernanke added, “In recent years, I and others from the Federal Reserve have underscored the importance of community banks to the U.S. financial system and economy. I continue to believe that firmly. Community banks serve businesses and consumers throughout the country, in both rural and urban areas. They are a leading provider of credit to small businesses, a key source of job creation in this country.”

The FDIC chairman’s message was similar. “Community bankers are vitally important to our country and our economy,” Bair said. “You are a significant source of credit for consumers and small businesses in good times and bad. The FDIC has a very unique perspective on community banking — most of the institutions we supervise have assets totaling less than $1 billion.

“We understand your business,” she continued. “Many of our examiners live and raise families in the same communities that you serve so they understand how important you are to the local economy. We’re encouraging them to keep using sound judgment in reviewing loan portfolios and determining the current fair value of assets, which can be tough in today’s economy.”

Bair explained that the agency has made clear that examiners should not classify performing loans solely because the value of any underlying collateral has declined, particularly when other indicators are healthy. “Striking the right balance can be tough,” she agreed, “So we encourage close communication between bankers and your regulators.”

In an effort to boost morale and grassroots efforts, R. Michael Menzies, incoming chairman of the ICBA and president and CEO of Easton Bank and Trust Co. in Easton, Md., told attendees, “It’s up to community bankers to restore the image of banking so that when people hear ‘banker,’ they think of the loan that got their favorite restaurant going, the tuition loan that let a family send one of their own for the first time off to college, the money that helped build the community center and the eye doctor’s practice, and helped rebuild a neighbor’s home after a tragic fire,”

He went on to say that more than ever before we need a choir to sing as loud as possible that Wall Street is not America. “As independent bankers, we value capitalism and want free markets that allow people to take risk and make a fortune, or lose money when the risk becomes excessive,” Menzies said.

Members of the ICBA 2009–2010 executive committee were installed at the closing general session Saturday morning (March 21). R. Michael Menzies succeeds Cynthia L. Blankenship, vice chairman and chief operating officer of Bank of the West, Grapevine, Texas, who becomes ICBA immediate past chairman.

Also elected were vice chairman, Salvatore Marranca, president and CEO, Cattaraugus County Bank, Little Valley, N.Y.; secretary, Wayne Cottle, president and CEO, Dean Bank, Franklin, Mass.; and directors at-large, Jack E. Hopkins, president and CEO, CorTrust Bank, N.A., Sioux Falls, S.D., and Charles F. Harper, chairman, president and CEO, The Commercial Bank of Ozark, Ala.

Rounding out the executive committee are Terry J. Jorde, ICBA past chairman and president and CEO of CountryBank USA, Cando, N.D.; David E. Hayes, ICBA past chairman and president and CEO of Security Bank, Dyersburg, Tenn.; and Camden R. Fine, ICBA president and CEO.

Bill Poquette is editor-in-chief of BankNews.

Copyright © May 2009 BankNews Publications