Title: Deja Vu, Denial, and Deposit Evolution: The First Phase of the Current Crunch Broke New Ground, Says OCC's Tim Long. Much of the Second, However, Follows a Familiar Script
Abstract: [ILLUSTRATION OMITTED] Tim Long, senior deputy comptroller for bank supervision policy, has been involved with just about every level of bank examination, from multinationals to community banks, over his 30 years at Office of Comptroller of Currency. He assumed his current post, which also makes him Chief National Bank Examiner, in April 2008. Because of his experience, he anticipated some of what has happened. But other parts hit him as a complete surprise. break this thing into two pieces, says Long, who was interviewed in mid July, the last 18 months what I see coming for next 18 months. earlier period saw a complete shutdown of certain markets, just across country, but worldwide, Long explains. asset-backed commercial paper market shut down effects cascaded through financial system. Clearly, I don't think any of us have ever lived through that kind of liquidity crunch with that magnitude spread that spread with that velocity, says Long. It ranged all way across world. That's something I would not have anticipated. And it was very difficult to deal with. But now, Long says, that tidal wave of trouble has begun to recede. feel like programs that government has used, that regulators have put in place, have made market disruption stabilize a bit. Liquidity is returning markets are beginning to work again. That's good news. Now I feel like we're getting into more of a traditional credit cycle issue, says Long. We're in midst of a recession. We've got significant asset quality problems in banking system. At OCC, we're anticipating that we're going to be dealing with this for some time. A natural question is, how long is quite some time? Two, three years? Long says he's no economist, declines to project. However, he says experience demonstrates certain trends. Even when economic types decide that recession is over--as some already have--it won't be over for banks. The trauma in bank portfolios will generally continue for a number of quarters beyond says Long. Banking's ride into valley One of jobs of bank examiners, especially in midst of such turmoil as we have now, is to keep in touch with their book of examined banks sure your bankers are not in denial that they are looking at their portfolios realistically, says Long. Beyond that, bankers must be acting--looking at commercial real estate commercial industrial credits that are in trouble. Examiners need to make sure, says Long, that bankers are working with borrowers figuring out either exit strategies or workout strategies--some way to get paid back. Long's comment implies that there are bankers who either didn't see, or still haven't seen, troubles in their portfolios. think all of regulators have probably witnessed some denial over last couple of years, says Long, and we've been pretty vocal about that. So it's a case of reality setting in bankers realizing they in some cases really do have some serious problems, that it's going to take a while to work out of this. Long believes most recent growth period--with it's long steady rise in lending profits--led to deterioration of credit cultures. When you have an extended period of good times, where you really don't have any kind of downturn at all, there comes a complacency to underwriting, Long says. Standards start to slip. Competition grows. You see a lot of banks being chartered. You've got loan officers inside those banks who have never seen real estate values go down. Long says OCC made it clear early in cycle that it had concerns about growing CRE concentrations, especially in residential developer credits. It's not like this 'just happened', says Long. …
Publication Year: 2009
Publication Date: 2009-09-01
Language: en
Type: article
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