Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: THURSDAY, February 25, 1993 TAG: 9302250103
SECTION: BUSINESS PAGE: B-5 EDITION: METRO
SOURCE: MAG POFF STAFF WRITER
DATELINE: LENGTH: Medium
CHARACTER LOANS? BANKERS LIKE 'EM
The chairman of the Federal Reserve Board has told a congressional committee that he regrets the loss of "character loans" to small businesses.Some Roanoke bankers think Alan Greenspan should spread the word even further.
"I think he needs to talk to his regulators," said Douglas Waters, regional executive officer in Roanoke for NationsBank Corp.
Bankers, probably more than most other people, liked the time when a businessman might qualify for a loan on the basis of his good character and reputation in the community rather than on reams of paperwork, Waters said.
Today's tough regulatory environment was probably a needed correction, "sort of like cold water in the face," said Robert C. Lawson Jr., president of Crestar Bank in Roanoke.
Unfortunately, he said, borrowers have suffered along with the industry when it comes to documenting loans to survive regulatory review.
C. Royce Hough, executive vice president for corporate banking at Dominion Bank, said he's heard no proposal that would encourage the industry to make loans on the basis of character alone.
If Greenspan's testimony means anything, he said, he hopes regulators will be less rigorous in applying very restrictive guidelines on commercial lending.
Greenspan told the House Budget Committee on Wednesday that the Fed, which regulates large bank holding companies, was working closely with other federal regulators "to ensure that undue impediments to credit flows are removed."
Many small businesses across the country have complained that Congress asked one regulatory head to be less restrictive, then "cut him off at the socks" as being too lenient. they can no longer obtain loans for creditworthy enterprises and that local bank officials are blaming overzealous federal regulators.
Waters said the industry is skeptical about government pronouncements actually leading to change. He recalled that Congress asked one regulatory head to be less restrictive, then "cut him off at the socks" as too lenient.
In today's environment, Waters said, a business person may have outstanding character and be paying a loan on time. Yet regulators will rate the loan substandard for lack of financial information or for what the data show.
This situation, Waters said, especially hurts customers in rural areas who are less sophisticated than city dwellers in making complex financial presentations.
The problem, he said, is not lack of money to lend but the amount of paperwork required to underwrite a loan.
Because of the regulators' "very, very stringent and formalistic approach to lending," Hough said, fewer borrowers can qualify for less money than they did just a few years ago.
Hough is hopeful, however. The more the situation comes into public focus, he said, the more likely it is that an easier approach to lending will filter down to regulators who review loan portfolios.
Lawson said the "tough regulatory environment" has put a strain on banks and borrowers alike to document loans with extensive financial information and evaluations of collateral.
Only time will tell, he said, whether banks and borrowers will be freed from those restrictions. "It will be a welcome relief if it happens," Lawson said.