WASHINGTON — Though federal regulators acknowledged they were partly responsible for mixed messages sent to banks — "increase your lending, tighten your loan standards" — they continued to send them at a House hearing Wednesday.
With lawmakers also shouldering some of the blame, regulators contradicted each other — and, at times, themselves — about what they were asking of banks.
Timothy Long, the chief national bank examiner in the Office of the Comptroller of the Currency, insisted that his agency is not reining in lending standards excessively but at the same time called those standards too lax.
"We have not told our examiners to crack down on banks," he said. "They are obviously more sensitive to problem assets and loan portfolios."
House Financial Services Committee Chairman Barney Frank acknowledged the mixed signals and said during the hearing that lawmakers were partly responsible.
"We do tell the regulators two things: Tell people to make loans; tell people not to make loans," he said. "They are not supposed to be the same loans, but there is this tension here."
But the Massachusetts Democrat said lenders have to find a way to start lending again and said this could happen even while keeping the system protected.
"In normal times, the role of the regulators is to make sure the bad loans aren't made … , but we are not in normal times right now," he said. "We are in times where there is a clear problem with making good loans."
During the hearing, Frank asked regulators whether banker complaints of a crackdown had merit. At least one, Scott Polakoff, the acting director of the Office of Thrift Supervision, said bankers are right.
"There is an element of truth to that," he said. "What we have to do here is improve our communication. There are a number of mixed messages here."
The OCC's Long denied there is a crackdown but said regulators have reason to be concerned.
"I don't think we have ever gone into an economic downturn with the kind of commercial real estate concentrations like we have now," he said. "Naturally our examiners are focused on that."
In a short interview during a break in the hearing, Long said policymakers who are emphasizing that banks need to lend "need to be careful."
"There needs to be a balance," he said. "We told our examiners we don't want our bankers to make bad loans. That's what got us into this in the first place."
He said the OCC is focused on ensuring that the problems that led to the crisis, such as loose underwriting, are not repeated, and some banks with risky concentrations simply have less capacity to lend, he added.
"Bankers can't be in denial," he said. "They need to be realistic about what the quality of their loan portfolio is … . There clearly needed to be some tightening, and with the country now in a recession, there [are]n't that many good-quality borrowers out there, so they've got to be selective."
During the hearing, lawmakers from both parties took turns reciting to the regulators complaints from their constituents.
They said bankers are denying credit to worthy borrowers and many small businesses are in jeopardy because they cannot get routine bank funding.
Reps. Mel Watt, D-N.C.; Kenny Marchant, R-Texas; Carolyn Maloney, D-N.Y; Joe Baca, D-Calif., and Donald Manzullo, R-Ill., took turns cataloguing similar concerns.
Rep. Al Green, D-Texas, said he is concerned that creditworthy borrowers are being shunned. After asking the regulators to raise their hands if they agreed, two — Federal Reserve Board Gov. Betsy Duke and the OTS' Polakoff — raised them.
Noticing that the OCC's Long kept his hand down, Green asked him to defend the claim that creditworthy borrowers are not being denied loans.
"In talking to bankers, I ask bankers point-blank if they are [giving loans] to creditworthy borrowers, and everyone is telling me, 'Yes, we are,' " Long responded.
But after Green pressed the point, Long acknowledged that in some sectors securitization is shut down and that banks with heavy concentrations in certain areas have stopped lending.
Green appeared satisfied. "Mr. Long, you and I are having a kumbaya moment," he said.
