BOSTON -- The Office of the Comptroller of the Currency is planning to simplify its loans-to-one-borrower rule and allow national banks to compute their limits each quarter.
Current rules require banks to make the computation every day. They are prohibited in most cases from lending more than 15% of capital to any one person.
The single-borrower limit is the first in what is expected to be a series of regulatory simplifications from the OCC.
Thorough Review Conducted
The rule is the fruit of a wholesale review of regulations ordered in the spring by Comptroller of the Currency Eugene A. Ludwig. The former banking lawyer wants his staff to rewrite the rules to make them simpler to understand and follow.
Donald G. Coonley, chief national bank examiner, told a gathering of bank loan officers in Boston on Monday that the agency also will clarify when a bank does not have to aggregate an individual's loans for reporting purposes.
Borrowers who have more than one source of repayment could be exempted from the limit, he said.
Bigger Loans Might Result
Streamlining the "combination" rules could allow banks to lend more to the individuals, he added.
The trend in regulation is toward more general, rather than specific, edicts.
In addition to Mr. Coonley, officials of the Federal Deposit Insurance Corp. and the Federal Reserve Board addressed the 800 bankers gathered for the 79th annual fall meeting of the Robert Morris Associates.
All three regulators said bankers need to use their judgment more and rely on regulators less.
That brought groans from the audience, indicating that bankers prefer regulations spelling out exactly what they must do .
"We want to leave it to the bankers to run their institutions," said Bob Miailovich, an associate director in the FDIC's supervision division. "Learn to live with some ambiguity. Do what you think is right."
THe FDIC took that approach recently when it issued guidelines suggesting the right way to use outside auditors.
Safety Standards Due
The three agencies also are about to issue a proposal laying out general standards for safe and sound operations.
Congress required the rules in the 1991 banking law, but regulators decided to write the rules loosely to give the industry as much flexibility as possible.
"You do the right thing, and we'll do the right thing," Mr. Miailovich said. That brought outright laughter from the bankers, who seemed skeptical that examiners would allow them to exercise much discretion.
But Robert J. Higgins, vice chairman of Fleet Financial Group, Providence, R.I., agreed with the regulators.
"This whole cookbook approach is going to sound the death knell for this industry," he said in an interview. When you don't have self-confidence, you force yourself to rely on details.
"The industry must regain its own sense of self-confidence in order to make the judgments necessary for growth."
The banking agencies are rushing to reissue for a second round of comments their controversial plan to allow banks to make more real estate loans without certified appraisals.
The regulators were supposed to finish the new rules this month. Instead the agencies will reissue the proposal by the end of September. The idea is to lower lending costs by lifting the appraisal threshold to $250,000. But opposition from appraisers has pushed the final rule back to the end of the year.
To counter attacks by appraisers, the agencies are bolstering their original proposal with more supporting evidence.
It's unlikely that the $250,000 floor will be lowered, but the new rules may apply only to commercial mortgages. Why? Because most home loans are sold into the secondary market, which requires certified appraisals.