ABA Banking Journal - November 2008 - (Page 18)

briefing BANKING 2.0: CREDIT continued from page 10 for capital to fund them, without tying up lender balance sheets. “Simply going back to only portfolio lending will not be good for the home buyer,” says Jo Ann S. Barefoot, principal at Jo Ann Barefoot & Co., Defiance, Ohio. Securitization changed the dynamic of big portions of the credit granting business, says Quarles. Securitization increased the pools of capital available for many activities and provided more robust support for economic activity, he says. “Those were real benefits that are worth preserving, as we go forward.” But it is essential some form of accountability be considered. Changes in the works Observers think that some areas of lending will change more, in the months and years to come, than others. The controversy over the degree to which the Community Reinvestment Act played a part in current conditions, to be treated in a subsequent part of the “Banking 2.0” series, will have its own resolution. Credit consultant Ed O’Leary suggests there will be both temporary shifts in attitude and practice, and more structural shifts. It may be some time before it becomes clear which is which. To a degree, at least in the short term, lenders are going to retreat to the tried and proven techniques that they were weaned on. “This is truly a back-to-basics time and that’s good,” says Ed O’Leary. “But a lot of people are going to get squeezed out.” To a degree, he argues, back to basics means hewing more to the strict view of things, with somewhat less flexibility for the out of the ordinary, the borderline, the not-quite-there credit. “This is a time for careful analysis and a close review of the bank’s risk tolerances,” says FinPro’s Nick Ketcha. “I can guarantee you that that’s the marching orders that examiners are getting.” O’Leary sees this return to conservatism affecting both commercial and consumer credit types. To a degree, though, he says, “the consumer market will tend to wag the dog.” In extreme cases, some banks may find that their best short-term strategy is to shrink the bank, says O’Leary. This will preserve capital, and help bring capital ratios in line with regulatory requirements. The jury is still out on whether smaller banks will make use of any of the federal efforts to inject capital into the banking system. As Congress examines the ongoing controversies in banking next year, it’s likely that regulators will come in for their share of bashing. When made into scapegoats, says O’Leary, they will react by coming down harder on the institutions that they regulate. Regulatory attitude Going forward, there’s a matter of how 18 NOVEMBER 2008/ABA BANKING JOURNAL Subscribe at www.ababj.com http://www.ababj.com

Table of Contents Feed for the Digital Edition of ABA Banking Journal - November 2008

ABA Banking Journal - November 2008 Contents Editor's Column Banking 2.0: Credit, Banking's Essence, Set for Rethinking Snapshot: The Few, the Proud, the Banks that Can Raise Capital Will Strong and Simple Banks Inherit the Business? Back to the Future ABA Resources ABA Chairman's Position Farm Lenders Must Take Care When Lending in Indian Country Pass the Aspirin Into the Breach Adventures Across A Century What the Future Holds, Post Crisis Paul Volcker: A Financial Legend Still Speaks Strong Ed Yingling: Weathering the Storm Dick Kovacevich: "Boring" Banking to Dynamic Financial Services Jim Culberson: Community Banking: What has Changed and What Shouldn't Walter Shipley: How a Chemical Reaction Helped to Mold Today's JPMorgan Chase William Isaac: Challenges and Opportunities Ahead for Banks A Hundred Years from Our Pages Eight Tech Innovations that Brought Banks into 21st Century Bank Cherokee: Third Generaton Marks 100th Year The First National Bank of Altavista: Railroad Gave Birth to a Town, a Hope Chest, and a Bank Rosedales Federal Savings and Loan Association: How a Friendly Game of Cards Turned into a 100-Year Mutual New Washington State Bank: Cooking Up the Next 100 Years Mailbox Banker's Mart To Advertise/Index of Advertisers The Economy

ABA Banking Journal - November 2008

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