ATLANTA -- Low-interest rate policies and other stimulus policies aren’t having a major impact on spurring the economy because uncertainty about regulations and politics is making executives cautious, the president of the Atlanta Federal Reserve Bank said Thursday.
The economic recovery has been uneven and sporadic, Dennis Lockhart told 200 bankers from throughout the Southeast at an all-day conference at the bank’s headquarters.
Many bankers have complained that complex government regulations discouraging them from making loans despite favorable interest rates and plenty of available money to lend.
“I think it has contributed to an atmosphere where bankers are cautious, but what we hear is banks are ready to lend but demand is soft,” he said.
Government regulators like the Fed, the Federal Deposit Insurance Corporation and state banking commissioners are still implementing laws Congress enacted in response to the credit crisis of 2008, try to minimize uncertainty by regular communications with bankers, according to Lockhart. For instance, the Dodd-Franks act, requires another 50 rules to be drafted and approved. Just one of those proposed rules generated 17,000 public comments.
“The landscape of rules and regulations is not completely settled,” he said.
Banker John Kanas, president of BankUnited, spoke for many of the participants.
“We just don’t know what’s coming. We don’t know how it’s going to be interpreted,” he said.
Lockhart, in his remarks, observed that aggressive monetary policies aren’t as effective as economists would hope because of the impact of other factors.
Low interest rates aren’t stimulating much bank-loan activity or purchasing from the final consumer.
“It means some bankable loan demand is not being met in spite of ample liquidity,” he said. “And it means final demand for goods and services remains subdued and the added employment that growing final demand ought to generate is slow to materialized.”
He said regulatory uncertainty was just one of the factors are chilling banking activity.
Larger businesses aren’t borrowing because they had built up cash following the recession by cutting costs. Smaller businesses aren’t borrowing because they don’t see their sales growing and their land has lost too much value to use as collateral, according to Lockhart.
However, a straw poll of bankers at the conference showed that they believe the No. 1 challenge for the financial industry is their regulatory burden, more so than the economy or competition. They said market discipline is a better way to ensure the safety of banks.
Ed Horton, president of Ameris Bancorp of Moultrie, noted that the Dodd Frank banking law contains more pages than the Bible and will be hard to understand for small banks like his.
“We have this voluminous new law. Honestly, I don’t have the staff to read it and understand it. We have to rely on lawyers. ... I can tell you the cost will be staggering,” he said.
Steven Raney, president of Raymond James Bank, warned that the compliance costs will change the outlook of bankers.
“At some threshold, you really have to ask if it’s really worth all of the expense,” he said.
Some regulatory supervisors who spoke at the conference noted that of the 600 bank holding companies in the Southeast, half remain on shaky ground.
“I understand there can be different perspectives on this one, but no one would argue, certainly not us, with the view that lending to creditworthy borrowers is good for the borrowers, good for the economy and good for banks,” Lockhart said.
He denied that the Fed’s policy of paying 25 basis points to banks for money held above their required reserves encouraged them to take the reliable income rather than the risks of making loans.
“I don’t view it as a major disincentive to lend,” he said, adding he saw no reason to change the policy.
He favors sticking to the Fed’s low-interest-rate policy but not accelerating it by buying up more bonds on the open market, a process called “quantitative easing.”