WASHINGTON — On the eve of a hearing on credit and small-business lending, Comptroller of the Currency John Dugan said Monday that regulators and banks must err on the side of protecting safety and soundness over encouraging credit availability.

At an Institute of International Bankers conference, Dugan said managing the tension between the two is the central question for the coming year. But ultimately, he said, safety and soundness must take precedence.

"We simply have to make the financial system more resilient to future shocks, which means we cannot let the mere possibility of reduced credit availability in the future thwart our efforts for change," he said. "The issue should not be whether we strengthen the system but, instead, how much we do so and how quickly we do so, given the credit tradeoffs we face."

A Senate Banking subcommittee has scheduled a hearing today on credit availability and small-business lending — the second such hearing in less than a week.

Dugan, along with other regulators, testified Friday before the House Financial Services Committee on the same subject. During that hearing, lawmakers and bankers blamed regulators for restricting lending by being too strict in examinations.

In his speech Monday, Dugan said, "If in the name of short-term credit availability we fail to follow through with longer-term enhancements to capital and liquidity requirements, we risk perpetuating an insufficiently strong global banking system. In short, if we are going to err, I believe we should err on the side of safety and soundness. This bias, over the long run, will help ensure a sustainable level of credit growth that is consistent with our longer-term goal of financial stability around the world."

Also at the conference, Richard Neiman, New York's superintendent of banking, called for a "financial war gaming center" to detect financial risks.

"We need a mechanism to identify and address problems on the horizon before it is too late," he said. "For all the well-intentioned discussion about taking a forward-looking approach to prevent the next financial crisis, we are still too focused on the rearview mirror. Therefore, just as the military looks at emerging risks worldwide and plots preemptive scenarios, so must the financial system."

Neiman said a "financial war gaming center" could comprise the private sector, think tanks and academia and report to policymakers and regulators.

Its mission would include detecting risks and identifying regulatory gaps.

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