Steve Wilson, the chairman and chief executive of LCNB National Bank in Lebanon, Ohio, is a brave man.

His $632 million-asset bank is about to undergo an exam by the Office of the Comptroller of the Currency, yet he is still willing to speak publicly about what he views as a huge problem: overzealous examiners.

Barbara A. Rehm"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."

There are two reasons Wilson is speaking out. One, his bank is rock solid, or as he put it, "We're so conservative, we squeak." And second, he is the incoming chairman of the American Bankers Association, and it will soon be his job to voice the industry's concerns to Washington.

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."

To be sure, there are plenty of reasons bank lending has declined, including a lack of demand from creditworthy borrowers, and there can be no doubt that some bankers running shaky institutions are using examiners as scapegoats.

But plenty of talented executives make the argument that examiners have lost sight of their mission and are blindly applying rules without regard for their impact. After hearing from so many members, the ABA sent each regulatory agency a six-page letter last March, detailing complaints about the supervisory process. Among the beefs: Examiners are requiring banks to hold way more capital than the required minimums. The banks that cannot raise extra capital are forced to sell assets and curtail lending, the ABA said.

Despite guidelines encouraging bankers to work with troubled borrowers, the ABA asserted, examiners are criticizing even performing credits when the value of the collateral has declined. In some cases, the decline is nothing more than the examiner's opinion of the property's value based on local economic conditions.

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.

McCall Wilson, the chief executive officer of Bank of Fayette County, a $320 million-asset institution in Moscow, Tenn., is all too happy to supply examples.

After a six-week exam, he countered his Fed examiner's six-page assessment with a 26-page rebuttal. "I ate holes in everything they said," Wilson (no relation to Steve Wilson) recalled in an interview.

McCall Wilson asked to speak with his examiners' managers and succeeded in changing some elements of the review. "We spent three days talking about one loan," he said.

He also noted that banks have options.

His 105-year-old bank was supervised by the FDIC but switched to the Fed in 2003. "The FDIC beat us up over some crazy stuff," he said. "The FDIC didn't listen to us."

Despite this recent exam experience Wilson said he respects the Fed. "I gain something every time they come in."

The Tennessee Wilson admits he is not like a lot of bankers. "I'm an annoying person. I'm engaged and I'm informed. And I am 44 and want to do this for another 20 years," he said. "I've got to make this work."

"Bankers really have to stand up for themselves."

But the ABA's Wilson admits few bankers are as vocal as Fayette County's Wilson. Asked how hard it is to convince ABA members to let him use concrete examples of examiner overreach, the incoming ABA chairman says, "Bankers are reluctant. They say, 'Oh my gosh, you can't tell anyone that.' "

And it's not as if the regulatory agencies are ignoring the problem.

The Fed, led by its bank in St. Louis, began a training program in August 2008 called Rapid Response, at least in part to avoid complaints of inconsistent or unreasonable exams.

Since then, 143 teleconference sessions have been held with about 21,600 participants. (The Fed's exam force numbers 2,300, so obviously each examiner is listening to multiple sessions.) More than one-quarter of the sessions are related to credit, but topics include everything from executive compensation to case studies of failed banks.

"We arm examiners with education on a repeat basis and with practical examples," said Julie Stackhouse, the head of supervision in St. Louis.

And the agencies each have an ombudsman's office that can field bankers' complaints.

"We believe in consistency and due process," Chris Spoth, senior deputy director, division of supervision and consumer protection, said in an interview. "There are a lot of levers for bankers to pull."

It's up to bankers to start yanking.

Barb Rehm is American Banker's editor at large. She welcomes feedback to her weekly column at

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