White House Seeks Easing of Bank Appeals

The Bush Administration, worried about the credit crunch, is encouraging federal bank regulators to create a special appeals system for institutions unhappy with the reviews of examiners.

“There should be an appeals procedure for those who feel they were improperly treated,” said a federal regulator Tuesday who attended a White House meeting to discuss widespread complaints by businesses having a hard time obtaining bank loans.

Another Administration official said: “This would be an opportunity to voice your complaints at a higher level without fear of retribution.”

Many bankers have complained that federal examiners are taking a tough line on their institutions, forcing them to take drastic write-downs in real estate loans. To maintain their capital in the face of these loan losses, the banks have had to curtail their volume of outstanding loans--even if it means cutting off customers with sound credit ratings.

The tales of credit scarcity, once restricted to New England, are coming from all over the country and were reflected in the recounting of numerous anecdotes discussed at last Friday’s meeting between President Bush and officials of the Treasury Department and Federal Reserve Board. The two agencies regulate federally chartered banks.

“The President certainly wasn’t looking anyone in the eye and saying, ‘Do this or do that,’ ” an official said, but added that the message of concern was unmistakable. In response, the regulators are now considering ways to arrange expedited consideration of complaints from local banks to regulatory headquarters in Washington.

Officials of the Fed and the Comptroller of the Currency in Washington have the power to overrule their field examiners, but there has traditionally been a long delay in reviewing complaints.

An expedited appeals system could enable a bank to quickly challenge an examiner’s ruling. For example, a bank with a $10-million loan on a largely empty office building might have been forced by the field examiner to write off 50% of the loan, taking a $5-million loss. But the regulators in Washington might rule on appeal that the real estate markets will recover, and that only 10% of the loan should be a write-off. The bank would then have to set aside reserves for $1 million.

One Administration official emphasized that no final decisions have been made on the details of any appeals process, but said the objective is clear: “To encourage examiners to use a common sense approach to regulation.”

In Congress, however, this approach may well be viewed as a threatening effort to undercut regulation. Many influential members of Congress are likely to react angrily to any program that makes it easier for bankers to get Washington to overrule field examiners.

“I am alarmed at what appears to be a major backpedaling by the Bush Administration on bank regulation,” House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) said Tuesday.

He accused the Administration of sending “an atrocious message to bank examiners already hard pressed to convince bankers that strong regulatory standards must be maintained.”

Any change in regulatory procedures that would bypass field examiners is “greatly disturbing,” Gonzalez said. “This is the very thing that we uncovered in the Lincoln Savings investigation, where Charlie Keating went over the heads of examiners and supervisors and lobbied directly with the Federal Home Loan Bank Board. We cannot allow this to start all over again if we expect to maintain any kind of decent regulatory system.”

Although regional thrift regulators recommended action against Lincoln as early as 1986, they were overruled by officials in Washington. Lincoln failed in 1989 and will cost taxpayers $2.6 billion, the costliest thrift collapse to date.

The Senate Banking Committee is holding up the vote on the re-nomination of Comptroller Robert Clarke while it explores his handling of some troubled national banks. Sen. Donald Riegle (D-Mich.), the committee chairman, is convinced that Clarke ignored the warnings of field personnel about the weaknesses of some major Texas banks that later failed.

With the costly failures of thrifts and some major banks fresh in their minds, regulators are inclined to be tough. “The lesson is, ‘It’s easier to turn the dogs on than to call them off,’ ” said Bert Ely, president of a bank consulting firm.