Are US Bank Regulators Red-Lining?

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Are US Bank Regulators Red-Lining?

By Bill Conerly on October 7, 2009 | More Posts By Bill Conerly | Author's Website

A person familiar with bank regulation in Florida just told me a disturbing story. A bank was examined, the rating of the bank was downgraded, and the bank president asked the examiner why he was being dinged. Apparently the bank was in good shape. The examiner could not point to anything about the bank’s management or financial condition, he simply said, “No bank in Florida is CAMELS One.” (CAMELS is the bank rating system, and One is the highest grade possible.)

If a bank did that to a geographic area, it would be called red-lining and it would be grossly illegal. The same regulators who won’t give a CAMELS One to a bank in Florida would be all over a bank that said, “No borrower in Ft. Lauderdale could possibly be of the highest credit quality.”

My economic forecast is weaker than it otherwise would be because of credit constraints, and ham-fisted regulation doesn’t make it any easier.

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