Bush Says Examiners Still Impede Recovery
WASHINGTON - President Bush turned up the heat on federal banking regulators Friday, expressing concern that over-zealous examiners continue to discourage lending and impede economic recovery.
In a meeting with economic advisers, including Federal Reserve Chairman Alan Greenspan and Treasury Secretary Nicholas Brady, the President said tough examinations are having a "chilling effect on the availability of money at a time when interest rates are going down."
The comment from the one-hour, closed meeting was reported by the White House press secretary, Marlin Fitzwater.
Mr. Greenspan maintained that the economy is getting stronger - a view that Mr. Fitzwater said was shared by the others in the meeting.
The White House meeting was the second called in a week to discuss the economy, which was in recession at least through the second quarter, according to gross national product data.
But public opinion polls, including a confidence survey by the Conference Board released last week, have shown skepticism that a recovery is under way.
And a recent Federal Reserve survey of bank financial officers found that asset growth was weak, in part because of deliberate steps to rein in lending.
Three interest rate cuts by the Federal Reserve this year have not had the desired loosening effect. Fed officials have blamed the lending squeeze on lack of demand, rather than supply.
Mr. Greenspan reportedly told the President on Friday that economic fundamentals are strong and point toward recovery.
Recap of November '90
Concerns about a credit crunch and other economic problems sparked another series of White House meetings last November, one of them attended by leading bankers. Some administration officials, including Chief of Staff John Sununu, had blamed regulators and their examiners for being too tough on banks and thrifts, and choking off a needed economic stimulus.
The regulators agreed to a package of accounting and regulatory changes to stimulate profits and lending, and promised to get the word down to examiners.
On Friday, Mr. Bush, in effect, ordered a reminder.
"The point is, we want to make sure that examiners are aware of this problem and that steps are being taken by the banking industry to see that [examiners] are not being overly restrictive on their own," Mr. Fitzwater said.
Focus on Credit Crunch
He added that Mr. Bush did not ask Mr. Greenspan to lower interest rates further. The conversation, according to the spokesman, focused on the credit crunch and the shortage of business loans it is causing.
The participants identified credit availability "as one of the the biggest obstacles at this point toward getting more responsiveness in the economy," the White House spokesman added.
"It's very convenient for President Bush to lay blame on the regulators, rather than on administration banking reform policies that are scaring thousands of bankers silly," said Kenneth A. Guenther, president of the Independent Bankers Association of America.
Mr. Guenther said proposed cuts in deposit insurance coverage, coupled with rising deposit insurance premiums, are causing bankers to retrench. "A banker cannot make loans if he is insecure about his deposit base," he said.
"It's all of the above," said Virginia Dean, an American Bankers Association spokesman.
Issues of Safety, Soundness
"Borrowers are being cautious because they don't want to get in over their heads," she said.
"There is no question in my mind that at this time we are at a point of excessive examination and excessive regulation," said Carl J. Schmitt, chairman and chief executive of University National Bank & Trust Co., Palo Alto, Calif., with $320 million in assets.
Alan R. Morse, chairman of Boston-based U.S. Trust Co., agreed that the tough regulatory posture has been a factor. But "a number of people have commented within the past two or three months that they sense a moderation and that the pendulum may be coming back," he added.
This article includes reports from Reuters and United Press International.
PHOTO : Alan Greenspan Has faith in recovery