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Heavy-Handed Bank Examiners

February 02, 1992

In the article "Brady Exhorts Bank Examiners to Aid Economy" (Dec. 17), the meeting described suggests that the bank examiners' mere fact-finding and reporting missions have a negative effect on banks trying to make good loans and stay in business.

Their heavy-handed scrutiny of problem real estate loans cause many banks to restrict or even refrain from making certain types of loans.

Auditors from the Office of the Comptroller of the Currency just left the bank where I work as a middle-management executive. They were there for two months and acted as if they were at the Spanish Inquisition.

As I see it, the purpose of a bank examination is to document current conditions and compare them to those of the previous years and to those of other banks. I believe they serve an important function. The problem is, they pay little or no attention to how certain banks are weathering the economic storm.

All the examiners seemed interested in doing was criticizing and telling us that we didn't know what we were doing. My employer, like most other businesses, has earned less in 1991 than it did in 1990, but nevertheless will still make a profit and show capital growth.

The recommendation to find alternative remedies for troubled real estate loans other than drastic measures such as foreclosure is very sound. For example, a troubled real estate loan can be successfully collected and repaid without a foreclosure sale and without a charge-off. However, the appearance of a "notice of default," which signals the beginning of foreclosure proceedings, prompts the examiners to label the loan non-performing.

In California, foreclosure proceedings take almost four months, during which time a borrower can reinstate his or her loan in good standing. Selling the property, refinancing or liquidating other assets are all viable methods of reinstatement. Many banks, including my employer, work closely with these borrowers from the first appearance of trouble.

We seek foreclosure sales only as an absolute last resort. In fact, more than 80% of the loans the OCC labeled as problems in 1990 were resolved or paid off by the time the examiners returned in 1991. Sadly, however, they chose only to assess current conditions without regard to the future.

This shortsightedness must change. Examiners and bankers must cooperate and compromise in order to achieve the greatest good for everyone concerned. After all, the bank examiners and auditors are also part of this troubled economy and their actions to choke economic expansion will make them partners in their own downfall.

The writer asked that his name be withheld.

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