CHICAGO — Despite complaints from community bankers and some lawmakers about overzealous examiners, Federal Reserve Board Chairman Ben Bernanke on Thursday defended the central bank's examination staff, saying recent analysis suggests they are acting appropriately.
"The Federal Reserve takes seriously its responsibility to ensure that supervisory actions to protect banks' safety and soundness do not unintentionally constrain lending to creditworthy borrowers, and we have taken a variety of steps to address these concerns," Bernanke said via satellite before the annual Federal Reserve Bank of Chicago banking conference.
Since the financial crisis, bankers have repeatedly claimed that examiners were cracking down on even well-performing loans, leading them to curtail lending activities for fear of regulatory criticism. Congress has held several hearings on the subject, with lawmakers openly worried that the agencies have swung the pendulum too far in response to their failure to stop many lending practices that helped contribute to the housing crisis.
Bernanke said the Fed was paying attention to those concerns, but has not found evidence to back it up.
"We have also looked into specific concerns raised about the examination process and its effect on banks' willingness to lend," Bernanke said.
In 2011, the Fed reviewed whether examiners were "properly implementing the interagency policy statement on workouts on commercial real estate loans," he said.
That included analyzing documentation for more than 300 loans which had been identified with weaknesses in six of the Federal Reserve Districts. The chairman did not specify which districts those examinations were held.
"We found that Federal Reserve examiners were appropriately implementing the guidance and were consistently taking a balanced approach in implementing the guidance and… determining loan classifications," said Bernanke. "Moreover, the documentation we reviewed indicated that examiners were carefully considering the full range of information provided by bankers, including relevant mitigating factors, in determining the regulatory treatment for the loans."
The Fed has previously issued guidance to supervisors to take a "balanced approach" in how they oversee their banks and to lift an institution's supervisory rating when appropriate.
Banks with lower supervisory ratings typically end up lending less to borrowers. That's why quick upgrades could help lift some constraints on lending.
During the last two previous quarters, ratings upgrades at banks have exceeded the number of downgrades, Bernanke said, which hasn't happened since 2005.
The Fed has also taken steps to improve its examiner training and have pressed examiners to keep the lines of communication open with bank management.