Page 7 Volume 8, Issue 1 BHC staff folded into soundness teams The examination divi-


sion at the Bank Depart- ment has been restruc- tured in response to changing resource needs and evolving supervisory methods. The most notable result


of the staff reallocation is the elimination of the bank holding company examination group. The three examiners assigned to this group will join existing safety-and- soundness teams. All three are commissioned senior examiners and have commercial bank


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I want to provide local perspective to a statement Mr. Bachus submitted to the full committee during a hearing on the economy on January 26.


“A lack of small busi- ness lending by commu- nity banks can be traced back to the mixed mes- sages being sent by regu- lators,” Mr. Bachus said. “On the one hand, Wash- ington is encouraging community banks to lend to small business, while on the other, examiners in the field are micro- managing the day-to-day operations of these same institutions. These con- flicting signals are creating uncertainty that is pre- venting banks from lend- ing to small businesses, which is in turn impeding


examination experience. Bank holding company


activities will continue to be evaluated when war- ranted, although the review will be conducted as part of a commercial examina- tion and a separate report will not be issued. Factors determining the


scope of a bank holding company review will in- clude the complexity of an organization and whether a parent company has debt. The change, effective


February 14, was necessi- tated primarily by an in- crease in the number of


recovery.”


Similar messages calling for a more measured and balanced approach in ex- aminations have been con- veyed in recent years by bankers, the industry trade associations and others in Congress. At the Arkansas State


Bank Department, our examiners are instructed to avoid actions or decisions that are tantamount to managing a bank. We ex- pect the bank itself to es- tablish and adhere to pru- dent policies and proce- dures.


Admittedly, this line be-


tween banker and regulator can become less clearly defined when, for example there is a disagreement about the quality of a credit or when a bank is operating under an en- forcement action. Never- theless, this office tries


banks supervised by the Bank Department that are operating under formal or informal enforcement ac- tions. These institutions require a higher-than- normal degree of supervi- sion while, at the same time, the Bank Department must meet examination frequency guidelines for all the banks it supervises. Commissioner Candace


A. Franks disclosed the restructuring to Bank De- partment staff on February 7 and notified each state- chartered bank in a letter dated February 15.


hard to leave management of a bank to the bank itself. Regarding regulatory


restraints on lending to small business, I have not received a single comment from our banks citing an instance of an examiner influencing – directly or indirectly – a pending credit decision. Our expectation is for


any credit decision to be consistent with a prudent lending policy and appro- priate risk limits.


In fact, between June 30, 2007 – six months prior to the official start of the re- cession – and December 31, 2010, state-chartered commercial banks with main offices in Arkansas increased the number of small business loans on their balance sheets from 84,802 to 85,812, or by 1,010. During the same period, the number of


March 31, 2011


“ … I and my manage- ment team must closely monitor the industry and the affairs of the Arkan- sas State Bank Depart- ment in order to make changes as needed and necessary,” Franks states in the letter. “We feel that perform- ing any necessary bank holding company review as a part of our commer- cial examination process will be beneficial to our examination staff and will provide some regulatory relief for your institu- tion,” explains Franks.


small business loans on the books of all commer- cial banks nationally de- creased by just over 2.8 million.


Stated in dollars, the


balance of small business loans reported by state- chartered commercial banks with main offices in Arkansas increased during the period by 4.61 per- cent. In contrast, the bal- ance of small business loans reported by all com- mercial banks nationally decreased by 8.69 percent. The almost $6.7 billion in small business loans reported by the banks regulated by this office attests to the critical role they perform in their communities. While no bank should be deemed too big to fail, I believe each of these 97 state- chartered banks is too important to fail.


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