RIGULATORY INSIDER
BY BONITA G. JONES
Lending Expectations—
Messages from the Regulators
MANY WILL THINK of three messages from the regulators when they
look back on the first half of 2009:
1. Lend, in a safe and sound manner, to help stimulate an economic
recovery
2. Engage in responsible lending
3. Maintain sufficient documentation
Each of these messages has compliance risk implications. For example,
compliance professionals with CRA
responsibilities will need to ascertain
whether the bank’s CRA rating is at
risk because of changes in the institution’s lending volume.
Also—how a bank lends is garnering as much weight as its incidence of
lending. Did you know that the harm
caused by irresponsible or “bad” lending practices is not only taking the
forefront of compliance issues, but violations are now evident in examination
reports and CRA public evaluations?
Finally, there have been numerous
court case rulings against banks because of lacking loan documentation
and rising foreclosures are highlighting
additional gaps that are elevating risk
at banks.
Let’s take a look at the messages
more closely as well as response strategies that demonstrate to examiners
—“Yes YOU GOT THE MEMO (the
message)!!”
tions are encouraged to lend to help
stimulate the economy. For example,
in recent congressional testimony Martin Gruenberg, vice chairman of the
Federal Deposit Insurance Corporation (FDIC) 1 stated that “resolving the
current economic crisis will depend
heavily on creditworthy borrowers,
both consumer and business, having
access to lending.”
Intuitively we understand this co-dependent relationship; however, the
growing number of problem banks
and failed institutions flashes “
caution” on bankers’ risk dashboards.
For example, the number of banks
that closed during the first quarter
of 2009 ( 21) almost reached the total
number ( 25) for all of 2008. However,
the FDIC’s Chairman Sheila Bair has
been repeatedly reassuring, recently indicating that “most institutions remain
in sound financial condition, with 98
percent considered well capitalized.” 2
Collectively, the current situation
coupled with the apparent capacity of
the industry underlies the current expectation for bankers to continue to lend.
cess. Recent examples include The
Interagency Statement in Support of
the “Making Home Affordable” Loan
Modification Program, which was established under the Troubled Assets
Relief Program (TARP), and complements previous statements such as
the Interagency Statement on Meeting
the Needs of Creditworthy Borrowers.
In addition, comments from Federal
Reserve Board Governor Elizabeth
Duke’s recent congressional testimony suggest that these statements are
3
reviewed with examiners to ensure
balanced assessments.
➢Monitoring to assess lending and related activities such as efforts to work
with troubled borrowers. Reporting
processes that enable monitoring include recent agency efforts such as:
MESSAGE #1:
Lend to Help Stimulate an
Economic Recovery
Clearly, problems in the credit markets precipitated the current economic
crisis. Nonetheless, financial institu-
What are agencies doing to get
the message out?
➢■ Encouraging prudent lending through
guidance and the examination pro-
■■Incorporation of reporting requirements in the new “Making
Home Affordable” Loan Modification Program under the TARP.
■■Expanded scope of the Office
of the Comptroller of the Currency (OCC) and the Office of
Thrift Supervision (OTS)
Mortgage Metrics Report, which presents quarterly performance data
on first-lien residential mortgage
delinquencies, loss mitigation actions, and foreclosures.
■■Proposal to increase the frequency
of reporting small-business loan
information in Consolidated Report of Condition and Income
Statements (Call Report) from the
current annual requirement.
