What Top Bankers Told the President

. . . Credit Crunch a Misnomer for Slack Loan Demand

Q$A For the past four weeks, the message from the White House has been loud and clear: The economy isn't rebounding fast enough, and tightfisted bankers, fearful of harsh evaluations from examiners, are the reason why.

Last Thursday, President Bush summoned a dozen industry leaders to the White House to air their views. The meeting came on the heels of an administration plan to stimulate lending through regulatory easing.

After the meeting, three bankers fielded reporters' questions in the White House driveway. Excerpted below are comments by Hugh L. McColl, chairman of NCNB Corp., Charlotte, N.C.; John Medlin, chairman of Wachovia Corp., Winston-Salem, N.C.; and Alan Tubbs, president of Maquoketa (Iowa) State Bank and of the American Bankers Association.

Press corps: What did you tell the President? Hugh L.McColl: All of us commented that we felt loan demand was very slack, that [borrowers] were nervous. It was the view of the bankers that the regulators did not have much to do with that. It was the lack of demand rather than intervention by regulators causing a problem.

PC: Will the President's credit stimulus package help? Alan Tubbs: His initiatives were certainly headed in the right direction. We want to work with him to get the message from the head examiners down to the field.

Banks need to make [high-quality] loans, and there's adequate credit available. The question is for borrowers on the margin -- those that have extra leverage or are heavily involved in some areas of real estate. John Medlin: I observed that there were a number of reasons why credit was not growing very rapidly and why loan demand was weak.

Congress has consistently put new, burdensome regulations on the banking system. They require us to get appraisals for [real estate] loans of $50,000, which has now been raised to $100,000. [Such requirements] make credit more expensive for individual consumers and more difficult for banks to extend.

Bankers are eager to extend credit to anyone who is halfway creditworthy. That is not the problem. There simply is not the demand. I encouraged the President to abolish "credit crunch" from the vocabulary of administration officials.. There is no credit crunch.

PC: Are the regulators at fault? Medlin: The regulators have made absolutely no difference in our willingness to lend and extend credit at our bank. Tubbs: There seems to be a difference of opinion among bankers. In some areas, they do feel the regulators have had a cooling effect on lending.

PC: Any other suggestions? McColl: We may have a window of opportunity to move more Resolution Trust Corp. properties by offering incentives to acquirers. This would help take that huge overhang off the real estate market and perhaps brighten the picture some.

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