WHY has growth of the United States economy remained so slow?
Several hundred bankers from around the country may have unwittingly answered the question this past weekend using electronic key pads in a darkened Boston convention hall. When asked whether their banks had tightened lending standards in the past two years due to changes in regulation and supervision, 82 percent of respondents zapped a "yes" in the instant poll, and only 18 percent a "no."
Banks have had plenty of problems, such as bad real estate loans, that have forced them to hold lending down. But for those gathered at the annual meeting of the American Bankers Association (ABA), additional regulatory requirements, paperwork, and scrutiny were prominent concerns. The ABA plans to push for federal legislation next year to reduce red tape.
Banks are the primary source of credit for small businesses, which provide two-thirds of the nation's new jobs. Although higher capital requirements have stifled lending, several speakers at the meeting reminded bankers that there are some good reasons for regulatory scrutiny:
* Industry failures have depleted the federal deposit insurance fund, and regulators expect to shut down more banks. New rules take effect Dec. 19 that allow regulators to intervene before banks have exhausted all their capital. The premiums that banks pay to fund the insurance system were raised recently, but not by as much some regulators had called for.
* A study released earlier this month by the Federal Reserve Bank of Boston suggests that many banks fail to give equal treatment to minority loan applicants. Even after adjusting for factors such as creditworthiness, minority customers are 60 percent more likely to have their request turned down than whites.
* A rise in interest rates could hurt banks that have used low interest rates to widen their "spread" between the interest they pay on deposits and what they charge for loans. The bankers won sympathetic words from Treasury Secretary Nicholas Brady, who said "regulatory relief will be our No. 1 priority" if President Bush is reelected.
Acting Comptroller of the Currency Stephen Steinbrink noted that whoever wins the presidency will make several appointments that will largely determine the regulatory climate for banks: a new Comptroller of the Currency and three new Federal Reserve governors.