Regulators should "show some temperance" when examining financial institutions so that they can continue to lend money to help the economy improve, House Financial Services Committee Chairman Barney Frank wrote NCUA Chairman Debbie Matz and the heads of the other financial regulatory agencies.
In the letter, which Frank (D-Mass.) wrote with fellow committee member Walter Minnick (D-Idaho), they said that community banks have become strong and viable players in the industry. Therefore, it "would be short-sighted to weaken that role through overzealous regulatory actions-actions based not on wrong-doing or poor management practices at these banks, but on changes in the economic environment and toughening regulatory standards."
The letter seemed to place them in the same category as community banks, but does not say it specifically.
Frank and Minnick said some financial institutions have complained that examiners have changed the standard for being "well capitalized" from 5% for Tier One Capital to 8-9% and from 10%-12% for Total Risk Base Capital. This has resulted in some institutions restricting lending to shrink their balance sheets, they wrote.
The lawmakers also said that CAMEL ratings have focused too much on asset quality and don't take into account strength in other areas such as capital, core earnings and liquidity.
They also said forcing institutions to write assets down to current "market value" are "making the capital crunch artificially and unnecessarily worse."
Frank and Minnick also criticized regulators for discouraging short-term borrowing from the Federal Reserve and other sources by lowering liquidity grades on financial institutions that borrow too much.
NCUA Director of Public and Congressional Affairs John McKechnie said the agency would send a response to Frank and Minnick next week.