Banks suffering for others’ sins, association leader says
Regulators are putting the kibosh on some bank loans, according to Colorado Bankers Association President and CEO Don Childears.
At the same time, politicians and consumers are asking banks to grant more loans.
Stuck in the middle, Childears said he wants to clarify that mutual fund and brokerage house “non-banks” handled 70 percent of lending in recent years, not banks such as the ones he speaks with every day.
By September 2008, non-banks went from having $18.4 trillion to $4 trillion in capital after the worldwide financial meltdown suddenly devalued their assets and the loans they made to people who could not afford them.
Meanwhile, Childears, added, Colorado banks increased lending by 11.7 percent in 2008. Banks nationwide have $1.4 trillion in capital, he said.
Yet non-banks and banks have been scooped into one category by regulators, he said. Childears would like to change that.
“We’re not looking for any sympathy or trying to blame non-banks, but they’re the ones that have dropped lending,” he said. “We think regulators are raising standards at the wrong time.”
Childears takes issue with three regulations in particular.
The first is increasing capital requirements of banks, which means less money can be loaned, he said.
The second is limits on certain kinds of loans. In particular, Childears believes banks should not have a strict limit on how many commercial real estate loans they can offer. Home mortgages are a big business for banks, with 42 percent of residential mortgage lending coming from banks in 2006.
The third issue is institutional grading. Regulators independently grade loans more harshly than necessary at times, Childears said.
On one hand, he said, having a third party take a look at operations keeps people honest. However, people who make all their payments on time sometimes can face loan trouble because of the slightest blemishes in their credit histories, Childears said.
There’s not much loan recipients can do to make themselves look good to a regulator, Childears said. He said speaking with a banker and offering any extra information that may help keep the loan intact are a person’s best course of action.
Childears said he’s not counting on regulations focusing firmly on non-banks. But he warns loan availability may change.
“Depending on the bank or regional economy, regulations will result in deterioration of loans. Or, there will be no deterioration, but it will be hard to get new loans,” he said.