Treasury Unveils Steps To Stimulate Lending

WASHINGTON -- The Bush administration announced a series of regulatory steps Tuesday designed to encourage bank lending.

The measures, ranging from a modest easing of capital guidelines to a tighter rein on field examiners, came complete with an aggressive implementation schedule and a call by the Treasury Department for banks to play their "traditional role" in stimulating business and consumer spending.

Moves Effective Soon

Effective Oct. 31, banks will be able to treat preferred stock as Tier 1 capital. By Nov. 15, easier procedures will be in place for bankers who wish to appeal an examiner's evaluation. And regulators were asked to propose improvements by Dec. 1 in the definition of highly leveraged transactions, a major loan-classification headache.

"The administration wants to insure that proper balance in the regulation of the banking sector continues the upward [economic] trend and that Congress passes" administration-backed proposals including the bank reform bill and a reduction in the capital gains tax, said a statement issued Tuesday.

The changes are "permanent improvements in the regulatory process" designed to ensure that "regulators won't be either patting people with powder puffs or hitting them with chainsaws," John Robson, deputy Treasury secretary, said at a press briefing.

Focus on Examiners

Crucial to changing the climate, he said, is communicating the plan's details to bank examiners, who have been singled out by the White House and other critics for prolonging a credit crunch by harshly evaluating bank credit standards.

"You've got 7,000 people out there," Mr. Robson said. "Communicating to any body that large is difficult, and getting uniform application of standards isn't easy."

Few of the measures are new. Most have been discussed for months, and some were included in the package of regulatory and accounting changes that bank regulators unveiled last March.

List of Measures

Key provisions, in addition to the Tier 1 capital proposal, examination-appeal procedure, and HLT redefinition, are the following:

* Regulators are to develop comprehensive real estate examination and loan-evaluation guidelines, with an emphasis on troubled markets, by Oct. 31. In addition, the agencies must clarify appraisal guidelines and develop a random audit process to monitor examiners.

* Regulators must take a series of steps to improve communication of policy changes and clarifications, particularly a less rigid approach to real estate evaluations and to the refinancing of "miniperm" loans, by Nov. 15. Examiners, in turn, must make these changes known to bankers during each examination.

* By mid-November, the regulatory agencies will convene a meeting of all key supervisory managers and senior field examiners for an update on the policy changes as well as their economic impact.

The administration also called for enactment of the President's banking reform plan, reform of lender liability and bankruptcy laws, an enhanced individual retirement account to boost savings, and Senate confirmation of the president's nominees to the Federal Deposit Insurance Corp., Federal Reserve Board, and Office of the Comptroller of the Currency.

An Ambitious Timetable

The ambition to put most of the changes into effect within three to six weeks underscores the administration's determination to make a statement to the banking community and its regulators.

The unveiling of the plan capped an extraordinary week and a half during which President Bush became personally involved in a search for ways to loosen credit. He consulted repeatedly with top economic advisers and financial regulators, most recently on Tuesday before announcement of the program.

Bankers, meanwhile, had taken a more measured view of the problem, insisting that loans are available to creditworthy customers but that demand is weak.

"The attempt to enhance credit to borrowers is very welcome, particularly as the Fed's lowering the discount rate has had disappointing results," said Patrick A. Forte, president of the Association of Financial Services Holding Companies.

Responding to reporters' questions during a photo opportunity at midday, President Bush said, "Good banks should make good loans. But they've got to determine what that is. What we want to do is make sure the federal government is not in the way but fulfills its responsibilities."

He elaborated, in a statement released later: "With mortgage interest rates at their lowest levels since 1977, I want to ensure that we have sound banks making sound loans."

Banks Weaker than Borrowers?

Treasury Under Secretary Robert Glauber said banks are not lending because many have balance sheets weaker than those of their borrowers.

"That's backward," he said at a conference in Washington sponsored by Institutional Investor magazine. "Banks are supposed to be shock absorbers. The banking industry is really in a state of serious problems."

Mr. Glauber said Congress must enact the banking reform bill if the country is to avoid another banking crisis.

He also said the administration stands firmly behind the confirmation of Robert L. Clarke to a second term as Comptroller of the Currency. Mr. Clarke's agency has been blamed for overregulation, allegedly leaving banks reluctant to lend.

PHOTO : John Robson Calls changes permanent

PHOTO : President Bush Urges regulators to clear field

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