Lawmakers Come to Defense of Top Banking Regulator

Congressional supporters rallied Friday behind Comptroller of the Currency Robert L. Clarke, whose reappointment may be in jeopardy because of White House fears that he is contributing to a credit crunch.

Clarke’s five-year term as overseer of federally chartered banks expired Dec. 2. His reappointment by the Bush Administration appeared all but certain until White House Chief of Staff John H. Sununu emerged as an opponent.

Sununu, a former New Hampshire governor, believes that Clarke’s crackdown on lenders is responsible for the credit crunch and could help deepen the economic downturn. The weak economy has hit New England and its banks particularly hard.

Clarke “should be applauded, not threatened with the loss of his job,” Rep. Frank Annunzio (D-Ill.), chairman of the financial institutions subcommittee of the House Banking Committee, said in a letter to President Bush.

Bank “regulators can never be too tough,” Annunzio said. “I would hate to think how much worse the condition of the banking industry and the bank insurance fund would be today if it weren’t for the tough actions of Bob Clarke.”

Clarke’s support was bipartisan, with a leading Republican member of the banking committee, Jim Leach of Iowa, calling Clarke “a very good man who’s done a good job.”

“I can’t think of a less appropriate signal to the financial community than to (replace) a regulator for being too strict,” Leach said.

Sununu and others have complained that banks, under pressure from the comptroller’s office to improve their financial standing, are becoming hesitant to make new loans. Some bankers are telling the White House that their ability to lend money is being squeezed unfairly by the regulators.

President Bush is expected to decide next week whether to give Clarke another five-year term. Support for the comptroller is strong on Capitol Hill. Members argue that the savings and loan crisis, which will cost the taxpayers at least $132 billion, was prompted by weak regulation.

“The lesson of the S&L; debacle was that losses not recognized on a timely basis, and accounting practices that were fudged, produced far greater problems later,” Leach said.

Federal bank regulators are being strict in forcing financial institutions to record losses on marginal real estate loans. Before the collapse of hundreds of S&Ls; and the resulting scandals, regulators were more indulgent in their treatment of these loans.

As banks record big real estate losses, they are often forced to dip into capital, the basic financial underpinning of the institutions.

“While credit may have been restricted, it would send the wrong message to sack Mr. Clarke, who stands for high capital standards,” said Rep. Charles Schumer (D-N.Y.), a member of the House Banking Committee.

Annunzio said in his letter to Bush that Clarke’s reappointment would show “your Administration stands behind strong supervision of our nation’s banks.”

If the comptroller “hadn’t been a tough regulator, the economic condition of this country, instead of being of concern, would have been of disastrous proportions,” Annunzio said.

The comptroller, whose jurisdiction covers the nation’s major money center banks, is doing a vital, but unpopular job, said Rep. Richard Lehman (D-Sanger). Clarke “is not exactly setting the table at a picnic,” Lehman said.

“The banks are complaining that he is too tough on them. But you have to consider this in the context of what we have just gone through with the S&L; crisis,” according to Lehman. “I don’t think the banks should choose the regulator.”