Tomorrow’s Wall Street Journal paper will be running the story that House Financial Services Committee Chairman Barney

Deaf, Dumb, and Blind

Frank has sent a letter to top banking regulators to “go easy on small banks”.

You did read that correctly. Barney Frank essentially says that enforcing bank regulations is hurting the small banks so he wants the bank police to go deaf, dumb, and blind.

[...] House Financial Services Committee Chairman Barney Frank (D., Mass.) sent a letter to the country’s top bank regulators, including Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair, urging them to “show some temperance in their regulation of traditional banks.” One common complaint from lawmakers is that regulators’ tough examinations are making banks reluctant to lend.

“A self-fulfilling prophecy of community bank failures, shrinking credit availability and a slower economic recovery can all result from a regulatory overreaction to the current crisis,” said the letter, which also was signed by Rep. Walt Minnick (D., Idaho).

Federal bank regulators have hit hundreds of banks with formal and informal sanctions this year, ordering them to boost capital requirements — reserves set aside to cover possible losses — and sometimes to shake up management. Regulators have closed 115 banks since January, and bankers across the country are complaining examiners are criticizing the health of even the strongest banks.[...]

[...] Mr. Frank’s letter complains examiners are enforcing “unofficial” capital requirements that are higher than the normal standard. Secondly, it says examiners are focusing bank reviews mainly on asset quality and not other measures of a bank’s health. Third, it says “banks are being forced” to write down the value of assets to their market value, which can lead to “artificially low prices.”

A day after Mr. Frank’s letter, Timothy W. Long, chief national bank examiner at the Office of the Comptroller of the Currency, sent a memo to the agency’s examiners about new rules for commercial real-estate lending. In the memo he addressed the criticism examiners are facing.

“I have refuted and will continue to refute accusations that examiners are being ‘too tough’ or are creating the so-called credit crunch by their actions,” he wrote, according to a copy of the memo reviewed by The Wall Street Journal. [...]

By telling the bank regulators to lighten up on the smaller banks will simply allow the creation of an army of zombie banks. Over leveraging and bad loans contributed greatly to the economic collapse. Now when enforcing banking regulations are paramount to restoring trust in ‘the system’,  Barney Frank just wants the regulators to go soft on them.

This is analogous to telling the police not to look at the burglar going into the banks. Except in this situation the burglars are running the banks.

What is Barney Frank so upset about anyway? The following list is directly from the FDIC press release files. Clicking on any of the contained links will bring up the full report issued by the FDIC against the said named bank. A lot of the findings are in the category of ‘unsafe banking practices’ and these reports are a warning to the bank to get its act together.

By the way, just about every bank failure so far has appeared on this list ‘before’ they failed.

FDIC Cease and Desist Orders – Updated November 4, 2009

FDIC Cease and Desist Orders for 2009 – updated November 4 2009