The FDIC just released instructions that encourage banks to keep track of funds they receive from any of the so-called federal bailout programs. “In particular,” the FDIC says, “the monitoring processes should help to determine how participation in these federal programs has assisted institutions in supporting prudent lending and/or supporting efforts to work with existing borrowers to avoid unnecessary foreclosures.”
Finally, it appears that lenders will be held accountable for participating in these federal programs and will be encouraged to get the money out on the street. The guidance letter says “the FDIC expects that state nonmember institutions (or their parent companies) will deploy funding received from these federal programs to prudently support credit needs in their market and strengthen bank capital.”
While not a perfect system, the federal government is responding to the public outcry concerning institutions that participate in the support programs but hoard the money rather than deploying it as expected. FDIC-supervised institutions will be required to explain their efforts at regularly scheduled bank examinations and are encouraged to “include a summary of this information in shareholder and public reports, annual reports and financial statements, as applicable.”
Hopefully all banks, not just the ones supervised by the FDIC, will be transparent with their efforts to deploy funds if they receive taxpayer support.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at email@example.com.)