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ICBA: Stop Overzealous Field Exams

Hinder Community Banks’ Ability to Lend During Critical Time

Washington, D.C. (March 25, 2009)—The Independent Community Bankers of America (ICBA) today urged policymakers to address overzealous field examination practices, the proposed Federal Deposit Insurance Corporation (FDIC) special assessment and mark-to-market accounting rules that could prevent community banks from fully participating in the nation’s economic recovery.

“The vast majority of our nation’s more than 8,000 community banks are well-capitalized, well-managed common sense lenders that are ready and willing to help in the economic recovery by lending to small businesses and customers within their communities,” said R. Michael Menzies, ICBA chairman and president and CEO of Easton Bank and Trust Co., Easton, Md., in his testimony to the House Committee on Financial Services. “However, the current bank regulatory climate is causing many community banks to unnecessarily restrict their lending activities— something that will only prove to be counterproductive and exacerbate the economic challenges our country faces during these uncertain times.”

Menzies went on to say many community banks report that field examiners are overzealous, unduly overreaching, and in some cases, second guessing bankers and professional independent appraisers and demanding overly aggressive write-downs and reclassifications of viable commercial real estate loans and other assets. He also said that examiners are tougher on banks that have taken significant amounts of Federal Home Loan Bank advances, something that many community banks rely upon to provide longer-term funding. “In this climate, community bankers may avoid making good loans for fear of examiner criticism, write-downs, and the resulting loss of income and capital,” Menzies said.

ICBA appreciates recent overtures from banking regulators to foster communications between the banks and regulators on the examination environment, including the recent roundtable hosted by the FDIC with banks and federal regulators. ICBA also appreciates the steps taken by regulators to educate their field staffs on the consequences of overly restrictive examination practices on credit availability.

The one-time 20 basis point special assessment announced by the FDIC in February will also dramatically reduce funds community banks have available for lending to creditworthy borrowers. This, coupled with current market-to-market accounting rules, will negatively impact restoring the flow of credit on Main Street. Menzies said that the accounting rules distort the true economic value of businesses and serve neither the best interest of businesses or investors.

Read the full testimony at www.icba.org.