Officials ask for leniency for banking industry Regulators urged to encourage lending

Top administration officials asked bank and thrift examiners yesterday to extend the benefit of the doubt and use common sense when working with the financial institutions that are essential for fueling an economic recovery.

While gently chiding their audience for contributing to the "credit crunch," Treasury Secretary Nicholas F. Brady and others stopped short of placing full blame on the nearly 500 examiners for the tight lending that is said to be contributing to the economy's sputtering.


But, they said, new policy guidelines on how to value commercial real estate loans -- issued early last month and the topic of the two-day conference at the Omni Inner Harbor Hotel -- could help spur a renewed confidence and restart the economy.

"No one would disagree that our economy is in the vise-like grip of a credit crunch," said Mr. Brady.


"The result is a market in which some people are unable to borrow, and some bankers are afraid to lend," he said.

What was needed, Mr. Brady said, was for regulators to ensure thatthey "are not contributing to the problem."

Regulators must clarify their examination standards to "inspire confidence among those who now shy away from providing credit," he said.

Mr. Brady's comments came at the start of a conference that has brought together senior examiners from the four leading regulatory agencies charged with overseeing the nation's financial industry: the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Federal Reserve and the Office of Thrift Supervision.

More than a dozen top economic advisers and regulators were in attendance, including Fed Chairman Alan Greenspan, Michael J. Boskin, the chairman of the President's Council of Economic Advisers, Deputy Treasury Secretary John Robson and Federal Reserve Gov. John LaWare.

Meanwhile, House Banking Committee Chairman Henry B. Gonzalez, D-Texas, called a Jan. 3 hearing of his committee at which top regulators will be asked to explain policies governing the examination and supervision of financial institutions, Dow Jones News Service reported yesterday.

In announcing the hearing, Mr. Gonzalez complained bitterly that regulators refused to admit a representative of his committee to the conference in Baltimore.

Invited to testify were Mr. Greenspan, Federal Deposit Insurance Corp. Chairman William Taylor, Office of Thrift Supervision Director Timothy Ryan and Comptroller of the Currency Robert L. Clarke, all of whom were at the Baltimore conference yesterday.


The theme of yesterday's talks were summed up by Mr. Boskin, who attempted to appeal to the hearts, minds and consciences of examiners. While not expressly telling them to ease up, he asked that they consider the nation's economic health when evaluating loans.

"The banking system as a whole has been in a state of paralysis at best," he said. "We're all in this together.

"We all need a healthy, growing American economy."

Mr. Robson said that examiners should "encourage lenders to work with borrowers experiencing temporary problems," not discourage it.

"Why rigidly condemn or criticize the renewal of even troubled real estate loans if the only alternative is foreclosure, total loss and additional burdens on already distressed markets?" Mr. Robson asked.

On a different theme, Mr. LaWare said after the opening session that the Fed has been "somewhat puzzled" by the lack of expansion in the money supply despite a series of interest rate cuts.


But he said that while money supply figures were still less than half the level targeted, figures in recent weeks have shown some signs of improvement.