No one wants to see a repeat of the excesses that caused the current financial crisis. Irresponsible risks, fueled by greed and enabled by an anything-goes attitude on the part of regulators, must never again become a way of life on Wall Street.
At the same time, there is danger in applying overly tough new standards across the board, especially to community banks. A failure to regulate reckless behavior on Wall Street doesn’t call for an overzealous response aimed at Main Street.
Each institution is different — huge Wall Street investment banks, for example, bear little similarity to the many community banks that fuel small business growth and, in turn, local economies. And each of those has a different mix of assets and challenges.
Yet a one-size-fits-all approach is being prescribed by some regulators, according to local bankers, who have Gov. Chris Gregoire among those pleading their case. The frequent results are too-stringent directives that keep smaller, local banks from making responsible loans that are the life-blood of every town’s economy.
Regulators need to take a step back and apply common sense. That’s the message that should be sent by their bosses, who run the various financial regulatory agencies of the federal government.
In Washington, D.C., last week, Gregoire and a delegation of state business leaders reminded congressional and Obama administration officials that community banks didn’t trigger the financial crisis we’re in, but they’re suffering a disproportionate share of the consequences. Because of that, so are the communities they serve.
We’re not saying examiners should ignore principles of safety and soundness. Of the nearly 100 community banks that have failed nationwide this year, most probably deserved their fate. But losing community banks unnecessarily makes for a less competitive local-lending market, which hurts the No. 1 job creators: small businesses.
Affordable credit is the key ingredient to a strong, sustainable regional recovery. Without it, we won’t dig ourselves out of this hole.
Congress and the administration understand that, and have issued repeated calls for banks to loosen the reins and stimulate the economy by making loans. It makes little sense for government regulators in the field to block them from doing so by setting unreasonable standards.
Regulators need to be measured, applying reasonable standards on a case-by-case basis. Forcing community banks to make capital calls on borrowers for whom a little forbearance could mean eventually paying the loan in full is an example of a short-sighted, ultimately self-defeating approach.
Let growth happen by letting community banks serve their communities.
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