The newspapers report that the chief banking regulators are urging banks to lend money. But the front-line bank examiners, the men and women who work face to face with actual bankers, are giving different orders. They are telling banks to build up capital and liquidity, which can only be done by SLOWING lending.
The Wall Street Journal reports the phenomenon with this quote:
release imploring banks to lend and saying they should do their duty
under their charter, when at the same time the regulatory field forces
are bludgeoning community banks to death," said Camden Fine, chief
executive of the Independent Community Bankers of America.
I'm a skeptical guy, and I read quotes like that and wonder if it's just political posturing. However, this fall I've talked to dozens of bankers. I've spoken to three conferences of bank associations and met with the top executives and directors of several other banks. I'm hearing conclusively that their regulators want them to build up capital and liquidity, even if that means cutting back on lending.
The pronouncements of the top regulatory dogs don't match the behavior of the regulatory pack dogs.
This is important, because if regular Main Street businesses, (NOT involved in real estate development) are suddenly cut off from the capital they are used to having, then the recession becomes deeper and lasts longer.