Wanted: Sanity in the Exam Environment

Albert Einstein defined insanity as doing the same thing over and over again and expecting a different result. Given that definition, to many observers ICBA’s constant calls for more reasonable and balanced field examinations for community banks might appear insane. After numerous and repeated private meetings and public testimony in Washington on this crucial issue over the past three years, community bankers continue to face an overly stringent regulatory environment even as policymakers plead with community banks to boost lending to consumers and businesses.

The current environment hinders the ability of community banks to make loans, which ties up funding that could stimulate the economy. While bank regulators in Washington keep assuring us that they are working to have examiners take a reasonable and consistent approach, community bankers are experiencing something very different in the field and are feeling the consequences of unreasonably harsh exams. With mixed messages such as these, community bankers should be excused for questioning the regulators’ sanity.

All of Washington needs to listen up on this issue—and quickly. As policymakers grapple with a sputtering economic recovery, rigid examiner practices are contributing to a contraction of credit. Einstein also said that the only things that are infinite are the universe and human stupidity, and he wasn’t so sure about the universe. We need a smarter approach to bank exams if we want to keep the fragile economic recovery from reversing course. It doesn’t take an Einstein to figure that out. In a fair exam environment, community banks can give small businesses the loans they need and help America get back to work.