Comptroller of the Currency John Hawke urged lenders not to turn away creditworthy borrowers despite concerns regulators have about balance sheet problems. He recalled how a decade ago the Office of The Comptroller of the Currency reacted very sharply after national banks got into lending difficulties in the Northeast. The banking system is in far better shape now than it was then, he said. Hawke spoke at a meeting on financial services modernization sponsored by the American Law Institute and the American Bar Association.
In a Dec. 5 speech, Federal Reserve Chairman Alan Greenspan had said "both bankers and their supervisors should now guard against allowing the pendulum to swing too far the other way [after recent calls to tighten standards] by adopting policy stances that cut off credit to borrowers with credible prospects." Alluding to the speech, Hawke said "we [OCC] are very mindful of that concern."
But he added immediately that at the same time OCC would go on commenting to banks and their boards about what they found in examinations. And, he continued, "We've seen some of that risk come home to roost. We are seeing an increase in non-performing loans and criticized assets in loans and syndicated loans. All agencies share these concerns."
The comptroller recalled the banking crisis at the end of the eighties when, he said, "the supervisory process suffered a loss in credibility." He said in those days the agencies, "stood by until it was too late," and then the Office of the Comptroller "came in swinging like gangbusters. Banks felt the rules of the game had been changed," and some refused to make viable loans.