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ICBA: Posey Bill Will Support Greater Lending, Address Harsh Bank Exam Environment With Consistent Loan Classifications

Washington, D.C. (May 10, 2011)-The Independent Community Bankers of America (ICBA) strongly supports Rep. Bill Posey's (R-Fla.) legislative efforts to help spur more Main Street lending and fix overly harsh bank exams.  In a letter sent today, ICBA praised the Common Sense Economic Recovery Act (H.R. 1723) because it will help create more rational and consistent loan classifications, strengthen bank balance sheets and improve the harsh examination environment that Main Street community banks continue to face.

"Community banks are eager to lend in their communities and lead the economic recovery," ICBA President and CEO Camden R. Fine said in the letter. "When loans become troubled in a tough economic environment, often the best course for the borrower, lender, and the community is a modification that will keep the loan out of foreclosure. This bill would prevent adverse, inaccurate and counter-productive loan classifications by establishing conservative, common-sense criteria for determining when a loan is performing while also allowing for a more consistent examination environment."

In the letter, Fine went on to explain that many examiners have penalized loan modifications in recent years by aggressively placing loans on non-accrual status following a modification, even though the borrower has demonstrated a pattern of making contractual principal and interest payments under the loan's modified terms.  He wrote that this adverse regulatory classification results in the appearance of a weak capital position for the lender, which dampens further lending in the community and puts a drag on economic recovery. 

Fine also pointed out that the bill requires the Financial Stability Oversight Council to conduct a study of how best to prevent contradictory guidance from being issued by the federal banking agencies with respect to loan classifications and capital requirements.  He wrote that ICBA deeply appreciates Rep. Posey's efforts to address this contradictory guidance and overly aggressive impaired-loan classifications. 

"Community bankers are expressing enthusiastic support for your efforts," Fine wrote of H.R. 1723.  "Our members are telling us that your legislation resonates with their experience in examination and-had it been law-would have given them the flexibility to work with struggling but viable borrowers while maintaining the capital they needed to support their communities."

For more information and to view ICBA's letter to Rep. Posey, visit http://www.icba.org/