Fear Of Lending: A Banker's Rationale

In response to your commentary "Bashing the regulators won't get loans flowing," (Top of The News, Oct. 14), I would like to say: "Oh, yes, it will!"

Amid talks of easing banking capital requirements, I would like to give a banker's viewpoint. The facts are these: Banks aren't lending money because they are either too weak and lack the capital base to support new loans or they are afraid to make a loan that next week will be written off because of tougher regulations. On these lines, we should not lower capital ratios. Strong capital bases make good sense. Even more important, strong banks already meet the new requirements. Lowering requirements would just let weak banks get into more trouble. The real problem lies in the classification of the secondary source of repayment. For example, a bank that has a "performing" real estate loan, meaning interest and principal are paid current, may be enforced by the regulators to classify the loan as "nonperforming" if the value of the undelying real estate, the secondary source of repayment, has been reduced during a reappraisal.

I agree that this loan is less sound than one with sufficient capital, but is it really "nonperforming"? To bankers, "nonperforming" translates into loss reserves, a lower stock price, lack of customer confidence, and even the loss of the banker's job. The prudent solution is to maintain banks with strong capital ratios, but call 'em as we see 'em. If the loan is performing, then classify it as performing!

D. J. D'Auria

San Diego

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