American Banker's Editor-at-Large Barbara Rehm recently began writing columns for that trade publication and she's doing a great job of discussing some of the issues that face community bankers in the trenches and that don't otherwise get a lot of "play" in the press. One recent example is her September 2nd article (paid subscription required) that discusses "overzealous examiners."
Barbara interviewed one community bank CEO, Steve Wislon of $632 million-asset LCNB National Bank of Lebanon, Ohio, who seems to be channeling the ghost of Howard Beale: Steve's mad as hell and he's not going to take it anymore.
"Regulators have stifled lending to a great degree because bankers are afraid to make loans," he said in an interview. "Our exam last year was so very different than any other exam. They came in, they didn't smile, they had their marching orders from headquarters. It was a totally different experience."
You know, there's no reason not to smile, even if it's a wolf's grin like the one those Mexican bandidos gave Humphrey Bogart's character in "The Treasure of the Sierra Madre" right before they killed him and stole his burros. Personally, I prefer that if you're going to throw acid in my face, the least you can do is be pleasant about it.
Steve, on the other hand, has other reasons for complaining. He's the incoming chairman of the American Bankers Association and he feels an obligation to the industry (and to the larger economy that industry serves) to tell it like it is. I hope he continues to do so right up until the moment they attach electrodes to his tender portions and turn on the juice.
Not that bank regulators would do such a thing. Not in this country I like to call "America." Uh-uh.
Wilson said he understands why examiners are being so cautious — it's
a lousy economy, and lots of banks are struggling. But examiners, he
said, have crossed the line and become too cautious.
"That overcautiousness is really slowing down our ability to make
loans," Wilson said. "If we want to get this economy moving, we've got
to let banks do what banks do best, which is underwrite credit."
Examiners are routinely classifying performing loans, he said, which
is driving up bank funding costs and deposit insurance premiums, as well
as making it harder to raise capital. "It is more than a blow to your
ego," he said. "It's a bottom-line blow."
When the ABA sent letters to each of the federal bank regulators complaining about this attack of "overzealousness," the responses were revealing.
The agencies sent separate replies to the ABA, ranging in tone from indignant (Federal Deposit Insurance Corp.) to understanding (Office of the Comptroller of the Currency) to perfunctory (Federal Reserve Board). But all three agencies pretty much told the ABA that their examiners were doing their jobs as directed.
The OCC's chief national bank examiner, Tim Long, advised the ABA to stop talking in generalities.
"I encourage any banker who believes he or she has been subject to an overzealous examiner or unreasonable examination to bring those cases to our attention so that we can take appropriate corrective action," Long wrote. "In order to take that action, though, we need to know the specific facts surrounding the disagreements, which have often been elusive."
And that's the bottom line — if bankers want to change their exams they will have to go toe to toe with their examiners, pointing out specifically what they deem unreasonable. Bankers will have to take their complaints up the chain of command.
"The solution is to go to Washington and give example after example," Wilson said.
The FDIC being the only regulator to become "indignant" at the suggestion that its examiners might be "overzealous" is such delicious irony that I must use every corpuscle in my being to restrain the fatal fist of snark. It's not easy. I hope I don't pop a hernia.
Wilson admits that while it's nice in theory to tell bankers to travel to Washington, D.C. with "example after example" of regulatory overreaching, few bankers have the fortitude to undertake that arduous task. Most of them also know that examiners have long memories and that you can die slowly, of a thousand cuts, over a long period of time, just as surely as you can die from a well-aimed rapier thrust through the heart. Many bankers just bend over, take their whacks, and yell "Thank you sir! May I have another?"
I did represent one institution where not only management and ownership had the requisite moxie, but the outside directors reacted to the federal regulator's attempt to bully them by taking detailed notes of the meetings in which intimidation was attempted and used those notes as the basis for a section of the complaint that was filed in federal district court when the bank had finally had enough and sued the regulators, a section that was entitled "The Reign of Terror." That was the only instance in my career of over 35 years where I saw the bank's outside litigation counsel so confound the federal regulator's counsel in a deposition that she began crying. The primary federal regulator removed the offensive bullies from oversight of the bank, asked the bank to dismiss it from the lawsuit, and the bank, having ended the reign of terror, agreed. That's one of the few examples (albeit not the only one) of successful backs-to-the-wall, no-holds-barred, sue-the-bastards opposition by a bank I've witnessed. It did restore my faith in divine providence, however.
I'm pleased that Babara's bringing these problems to the forefront. She's not the only one, of course, but the American Banker has a large readership in this corner of the universe, and the more light that's shed on the problem, the better the chance that something might actually be done to address it.