Comptroller of the Currency John Dugan offered a gloomy view of the industry's health and said Wednesday that regulators will not hesitate to crack down on troubled lenders.

In remarks to the American Bankers Association, Dugan acknowledged these are tough times for U.S. banks, with 702 banks — nearly 9% of the industry — defined as troubled. He told bankers that regulators "simply cannot turn a blind eye" to problems and have learned the lesson that looking the other way will only compound losses.

Bankers have complained that regulators are being far too tough now, and Dugan said "we hear that message loud and clear," and need to balance it against complaints that regulators aren't moving fast enough to close troubled banks. He said the OCC is telling its bank examiners not to be tougher than they need to be and to use their best judgment, and he urged bankers who think they have been misjudged to complain to the agency's ombudsman.

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