Rep. Frank urges federal regulators to temper bank and credit union reviews

House Financial Services Committee Chairman Barney Frank (D-Mass.) is urging federal regulators to temper regulation of banks and credit unions out in the field. In a letter with Rep. Walt Minnick (D-Idaho), one of the more conservative members of the Financial Services panel, the lawmakers express concern about "overzealous regulatory actions" against banks, particularly community banks.

The letter, dated Oct. 29, comes as House lawmakers try to push legislation that clamps down on the credit card industry for boosting fees ahead of the full implementation of a law passed this spring. The letter also marks the second recent effort to separate community banks from the wider financial industry. In an effort to ease concern about a new Consumer Financial Protection Agency (CFPA), Frank and Democrats on the panel moved to exempt 98 percent of banks (mostly small banks) from the agency's examination power.

"It is critical now more than ever that regulatory personnel out in the field apply a measured approach to examinations that is directed by agency leadership rather than subject to arbitrary decisions in the field," the lawmakers wrote. Regulators are being "inappropriately tougher" now in examining asset quality and are "consistently requiring downgrades of loans whenever there is any doubt."

Frank and Minnick, who opposed the CFPA bill, say regulatory gaps were a major contributor to the crisis, but that "those gaps were largely within the non-bank lending market and Wall Street banks.

"We call on regulators to show some temperance in their regulation of traditional banks," they wrote.

The letter was sent to the heads of the Federal Reserve, National Credit Union Administration, Office of the Comptroller of the Currency, Office of the Thrift Supervision and Federal Deposit Insurance Corporation (FDIC).