HONOLULU - Comptroller of the Currency Eugene A. Ludwig announced a rule that he said would streamline and simplify regulations that limit the amount of money banks can lend to a single borrower.
The national bank regulator said that the agency would no longer require banks to calculate their capital base each time they make a loan. Instead, they will be able to rely upon the most-recent quarterly data. The rule takes effect March 17.
"Is it really necessary to have a special capital calculation for determining lending limits?" Mr. Ludwig asked in a speech to the Independent Bankers Association of America. "It makes a lot more sense to simply employ one of the others being used, like quarterly call report data."
Mr. Ludwig said the proposed rule also would help banks protect their interest in collateral used to secure a loan. For example, he said, a bank would be permitted to continue to advance capital against a construction project that is 80% complete, even if its capital declines.
"The new rule will no longer force a default or disclosure that serves neither the interest of the borrower nor the interest of the bank," he said.
Finally, Mr. Ludwig said that the rule would exempt from lending limits loans collateralized by the Small Business Administration, the Veterans Administration, and the Federal Housing Administration.
In those cases, the protection provided by capital is augmented by a guarantee from a federal agency.
The OCC has been working on the new lending-limits rule for more than a year. It was first proposed in February of last year.
In his address to the Independent Bankers' annual convention, Mr. Ludwig cited a number of other regulations his office was trying to simplify, and then said he would prefer "to avoid regulations altogether," unless they were absolutely essential.
"Our goal is to provide information, not imposition-oriented oversight - to use guidelines, like the mutual fund guidance, rather than regulations etched in stone," he added.
