Treasury Statements on Its Steps to Stimulate Lending

The Bush administration Tuesday capped intensive discussions among economic advisers and banking regulators by announcing a series of steps designed to ease credit and stimulate the economy.

At the bottom of this page are excerpts from a detailed outline of the regulatory changes and other proposed actions. Following is the text of a Treasury Department statement explaining the measures:

Secretary of the Treasury Nicholas Brady [has] announced new steps in the administration's ongoing efforts to address "credit crunch" problems identified by the business community, bankers, and regulators. The steps build on the President's economic agenda and are aimed at sustaining the economic recovery.

Banks' Role in Recovery

"Maintaining the economic recovery depends on banks' playing their traditional role, businesses' making investments, and consumers' purchasing goods and services," [Mr.] Brady said. Recent statistics show employment levels, housing starts, and industrial production rising. The administration wants to insure that proper balance in the regulation of the banking sector continues the upward trend and that Congress passes other administration economic growth proposals.

The administration's new steps were developed in consultation with the Federal Reserve Board, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision. They are designed to promote confidence and balance in the lending environment and to help businesses and consumers in their economic activity.

The administration's program builds on the previous efforts by the Treasury Department and financial regulators to assure that sound businesses and consumers can get needed credit. These efforts include encouraging lenders to make prudent loans and assuring that examiners perform their reviews in a balanced, sensible manner. The federal banking and thrift regulators have stated that they do not want the availability of credit to sound borrowers to be adversely affected by supervisory policies or depository institutions' misunderstandings about them.

To Ensure |Balanced Regulation'

In particular, the administration, while avoiding any encouragement of regulatory laxity, wants to ensure that the specific guidance issued by the regulators over the past several months is being fully implemented by examiners in the field and that additional opportunities for ensuring balanced regulation are pursued. Among the areas addressed are:

* Directives that bankers should work constructively with borrowers experiencing temporary difficulties and facilitate the orderly restructuring of credits.

* Prudent refinancing of economically sound commercial real estate loans.

* Improved verification by regulatory supervisors that recent policy changes and clarification are appropriately applied in each examination.

* Enhancements in the process for appeals of alleged misapplication of regulatory standards.

* Harmonization of the treatment of preferred stock in U.S. capital standards with other signatory countries under the Basel regulatory standards.

* Appropriate application of valuation standards especially in real estate credits so as to avoid a liquidation approach to valuation.

* Improved guidance in the appraisal process and steps to reduce excessive appraisal costs for lenders.

* Legislative action to make permanent recent [Environmental Protection Agency] regulations to limit lender liability for environmental cleanup of loan-collateral properties.

Prodding Congress

This program is in addition to the President's comprehensive economic growth package, which has been stalled in the Congress. These proposals designed for increasing job-creating investment include: reducing the capital gains tax, permanently extending the research and experimentation tax credit, establishing enterprise zones, and promoting saving through family savings accounts and expanded individual retirement accounts. "These proposals should be voted upon without delay," Mr. Brady said.

"Congress can also help by passing the administration's comprehensive banking reform legislation and approving its nominees for top financial regulatory positions which are before the Senate. Holding up these measures and appointments creates further uncertainty about fiscal, monetary, and regulatory policies," [Mr.] Brady said.

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