Banking deserves balanced approach

Don Childears says Colorado banks often find themselves between a rock and a hard spot, between politicians who demand that banks increase lending to stimulate the economy and regulators who curtail that lending to ensure banks remain financially sound.

Childears, president of the Colorado Banking Association, believes a more balanced approach is needed that both promotes credit availability while ensuring safe and sound banks. We agree.

Access to credit remains an important business issue and a contentious one in the wake of a financial meltdown and recession. Childears has heard the lament as frequently as we have: Why aren’t banks lending more?

In Colorado, banking lending levels decreased in 2009, but only about 5 percent from 2008 — and still ahead of the pre-recession days of 2007, Childears says. Through the first quarter of 2010, lending is down about 1 percent from the same quarter in 2009.

Childears attributes the trend to a decrease in loan demand. Prudent business owners and managers uncertain about the economy are understandably reluctant to expand operations — or take out a loan to do so. They’d rather preserve capital and ride out the downturn.

That means an increasing proportion of businesses that do apply for loans are more likely to face credit challenges at a time when credit standards have tightened. So fewer businesses are approved for financing, Childears says.

At the same time, though, bank regulators who operate independently from politicians have tended to err on the side of safety and, in doing so, curtailed access to credit. Here’s how far the situation has gone: Even borrowers who have sufficient funds in banks to cover all their payments have had loans called early, Childears says.

What Childears suggests is a change in the objectives of bank regulators to include a dual role: to not only ensure the safety of banks and bank deposits, but also to promote credit availability.

Contrast that simple and straightforward strategy with the

2,300-page Wall Street Reform and Consumer Protection Act and the hundreds of new rules federal financial reform legislation is likely to spawn.

Childears believes that heavy of a regulatory burden is only going to raise compliance costs for banks — and, in turn, their customers — and make credit less available, not more.

Here’s hoping that somehow, sometime a more balanced regulatory approach is struck that keeps banks away from rocks and hard places.