Comptroller Clarke Backs Bid to Ease Bank Appeals

Comptroller of the Currency Robert Clarke, responding to fears from the White House about a worsening credit crunch, said Thursday that he will bypass the normal supervisory process to consider complaints from bankers who say that regulators are being too tough in reviewing the safety of loans.

“I will be prepared to create a mechanism independent and separate from the normal process,” Clarke told the Senate Banking Committee, which is holding lengthy hearings on his nomination for a second term. “If the appeals process isn’t working, we ought to try something else.”

His statement comes just a few days after President Bush met with bank regulators and urged them to find ways to ease the “credit crunch,” a reluctance or inability of financial institutions to make loans to credit-worthy customers.

The credit crunch has been blamed on what critics say is a too-strict regulatory environment stemming from bank failures and severe loan problems in recent years. The White House is concerned that the lack of lending is restricting the nation’s fledgling recovery.

Without providing any details, Clarke said he will create a procedure under which bankers can challenge directly and immediately the rulings of the comptroller’s bank examiners in the field. These are the front-line regulators who tell bankers whether they should record substantial losses on real estate loans and other lending activity.

A special method of appeals would allow a banker to complain directly to top levels of the comptroller’s office so “it can be checked out,” Clarke said.

The Bush Administration has urged regulators to establish an appeals mechanism. Clarke’s remarks on Thursday comprised the first concrete and affirmative response from any of the four financial regulatory agencies--the Comptroller, Federal Reserve Board and Federal Deposit Insurance Corp. for banks, and the Office of Thrift Supervision for savings and loan associations.

Clarke disclosed his willingness to create an appeals process outside the normal regulatory channels after blunt and persistent questioning by Sen. Alphonse D’Amato (R-N.Y), who said, “We have regulatory strangulation. Regulators have become paranoid.”

D’Amato accused the comptroller’s field examiners of “holding good bankers with sound operations in fear.”

Sen. Donald Riegle (D-Mich.), the committee chairman, continued his long-running verbal duel with Clarke, accusing the comptroller of laxity in overseeing the problems of ailing Texas banks during the late 1980s. Riegle said Clarke had liberalized and weakened the regulations in 1987 dealing with evaluation of real estate loans.