Rep Cmte Financial Services

Bill To Review Impact of Bank Examination Practices on Economic Recovery Approved By Committee

Washington, Jul 20 -

The Financial Services Committee, chaired by Rep. Spencer Bachus, approved legislation to bring transparency to the FDIC’s bank closure process and procedures. H.R. 2056, authored by Rep. Lynn Westmoreland, requires the FDIC Inspector General to study issues raised by the recent rash of bank failures since 2008. The legislation was approved by a voice vote.

Chairman Bachus said, “As the economy continues to struggle and unemployment has been above 8 percent for 29 straight months, our efforts to review government policies that impede a recovery are more important than ever. Since the onset of the crisis, Members have continuously heard of the devastating economic impact of overzealous regulators, many of whom are micromanaging the daily activities at our community banks. This bill is a common-sense solution to understanding the exact impact of FDIC policies.”

The recent financial crisis led to a high number of bank failures. In 2009, 140 institutions failed. In 2010, 157 institutions failed. Early this year, the FDIC and six regulatory agencies issued joint guidance on “prudent” small business lending; however, examiners in the field have not always adhered to this guidance. This is commonly referred to as the “mixed messages” problem.

Rep. Westmoreland said, “Bank failures have hit states all across the country, posing a serious problem that’s negatively affecting our communities and stifling economic growth.  Georgia has been particularly hard hit with 67 failures since 2008, disproportionately punishing our towns and cities.  When I talk with local business owners, community leaders, and bankers back in the Third District of Georgia, they tell me bank failures in our area have led to a shortage of credit, hampering their ability to grow their businesses, to start a new business, and to protect their shareholders.  We need to figure out exactly what is causing such a high number of banks across the country to fail.  My bill starts that process with an audit of the FDIC’s policies and procedures, including controversial  practices like paper losses and loss-share agreements.  I commend the Financial Services Committee for passing this legislation and will push to have it put before the entire House for passage.”

To ensure the FDIC has access to critical information needed to complete the study, the bill facilitates coordination between the Inspector Generals  of the FDIC, Federal Reserve, and Treasury. H.R. 2056 requires the FDIC Inspector General to submit the results of the study and any recommendations to Congress within a year of enactment.  The legislation also calls on the Government Accountability Office (GAO) to study the causes of high levels of bank failures and the counter cyclical impact of fair value accounting standards.