Credit-Easing Plan Expected to Get Fast OK : Banking: Regulators have been asked to approve accounting rule changes to encourage institutions to make more loans.
The Bush Administration expects banking regulators to swiftly approve accounting rule changes aimed at easing the credit shortage, a senior Treasury official said Friday.
Deputy Treasury Secretary John E. Robson, the department’s No. 2 official, said four regulatory agencies, under the Administration’s coordination, are working on a common approach to easing a credit crunch that many business executives, particularly in the Northeast, blame for the recession.
“We’ve tried to convey a sense of urgency on this,” he told reporters, adding that he expects the new rules to be in place by spring.
His remarks came as New England members of Congress stepped up pressure on the Administration. The region’s delegation, in a letter Friday, urged Treasury Secretary Nicholas F. Brady to do more to make loans available.
Saying “time is of the essence,” they asked that he meet with them in the next three weeks.
On Thursday, two Massachusetts Democrats, Reps. Barney Frank and Joseph P. Kennedy II, suggested that they would hold up appropriations for the savings and loan bailout until the Administration takes more forceful action to counter the credit shortage.
Business people complain that bank examiners overreacted to the loose lending practices that helped lead to the savings and loan crisis, and that the overreaction caused bankers to become gun-shy and refuse to loan money even to credit-worthy borrowers.
Robson said he hoped the accounting changes would encourage banks to adopt a more reasonable approach to lending, but stressed that the Administration was not urging a return to the freewheeling S&L; practices.
Banks that make only “bulletproof” loans are not fulfilling their function in the economy, he said. “They’re supposed to make loans to businesses and take a few risks.”
However, he added, “the goal is not to have banks go out and make dumb loans. The goal is to have them make smart loans.”
The changes in the works include:
* Easing appraisal rules so banks are not forced to value real estate collateral at liquidation prices.
* Allowing banks to write off only parts of bad loans if some payments are being made.
* Relaxing, in some circumstances, rules that prohibit banks from concentrating too much of their lending in one geographic area or business sector.
The heads of the four agencies working on the rules were summoned Wednesday to a meeting with Brady. Two of the agencies--the Office of the Comptroller of the Currency and the Office of Thrift Supervision--are part of the Treasury Department. Two others, the Federal Reserve and the Federal Deposit Insurance Corp., are independent.
Robson cautioned that the rule changes would not work a miracle.
“It’s important to keep in perspective the fact that no one of these regulatory changes is going, in and of itself, to totally turn around the economy,” he said. “The idea here is to recognize the fact that we have an economy that is troubled, that banks have an important role to play as shock absorbers in the system during bad times and as fuelers of the growth in good times.”
He also said the Federal Reserve, which cut its key lending rate from 6.5% to 6% Friday, could lower rates even further to prod businesses and consumers to start borrowing and buying again.
“Obviously, one way to get demand started is by having lower interest rates . . . I think there’s ample latitude for more movement,” he said.
President Bush urged banks and policy-makers in his State of the Union address Wednesday to make more loans. “Sound banks should be making more sound loans, now--and interest rates should be lower, now,” Bush said.
