Despite the calls for regulatory toughness since the financial crisis, lawmakers are now warning regulators not to overreach as banks try to get credit flowing again.

House Financial Services Committee Chairman Barney Frank said in a recent letter that the agencies should ease up on their oversight of community institutions. Some recent supervisory actions penalize those not responsible for the crisis, he wrote, and hinder efforts to increase lending and modify bad loans.

"We call on regulators to show some temperance in their regulation of traditional banks," Frank wrote in an Oct. 29 letter along with Idaho Democrat Walt Minnick. "Not to jeopardize core safety and soundness principles, but to show some restraint in the immediate enforcement of new rules that may prove to be excessive at a time when community banks are least able to respond."

The lawmakers said agency leaders should establish a "measured approach" in examinations, instead of exams' making banks "subject to arbitrary decisions in the field."

Frank and Minnick relayed concerns from banker constituents, including about the new, "unofficial" capital requirements that are tougher than mandated levels; Camels ratings disproportionately determined by poor asset quality without enough attention to improved capital and liquidity and "artificially low" asset valuations.

"One of the biggest challenges faced by community banks (but shared by all banks) is how to respond to the calls from Congress to increase lending to stimulate the economy and to work with troubled borrowers on foreclosure mitigation, while dealing with increasingly stringent directives from regulators that can preclude banks from doing just that," the lawmakers said.

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