Regulators target community banks

March 8, 2010 at 3:51 PM
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WASHINGTON, March 8 (UPI) -- State attorneys general say U.S. regulators could hamper an economic recovery by coming down hard on community banks.

Community banks say Federal Deposit Insurance Corp. examiners routinely downgrade banks in safety and soundness examinations, using subjective and unofficial capital requirements to lower banks' CAMELS ratings, Legal Newsline reported.

CAMELS is an acronym for the criteria used: Capital adequacy, asset quality, management, earnings, liquidity and sensitivity to market risk.

Chris Cole, senior regulatory counsel for the Independent Community Bankers of America, said "we're hearing complaint after complaint" from community banks. Cole spoke last week at the National Convention of Attorneys General convention in Washington.

Legal Newsline reported bankers say a CAMELS downgrade forces them to put more money into reserves, making them reluctant to make loans and increasing their FDIC premiums.

There is no official change in capital requirements, but Cole said examiners on their own are imposing a capital requirement of up to 10 percent.

Oklahoma Attorney General Drew Edmondson, a Democrat, said community banks appear to targeted unfairly because of the near-collapse of large banks.

Nebraska Attorney General Jon Bruning, a Republican, agrees.

"America won't come out of this recession if small businesses can't thrive. They need that liquidity in the market," Bruning said, Legal Newsline reported.

Bruning is president of the National Association of Attorneys General and a possible U.S. Senate candidate in 2012.

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