Originally Posted by audreyh1
So, why does it take so very long to upgrade guidelines? Seems like the cat's already out of the bag.
I think that the APP's analysis is flawed, since they chucked all commercial RE loans into the bucket, not just development and construction loans. As I understand the regulatory guidance, it applies only to so-called C&D loans, not to standard commercial mortgages. If you look at it in the way I understand it, most banks are well within the new guidance.
So why does it take so long for bank (and insurance) regulators to change regulations? There are a lot of reasons:
- There are many different regulatory bodies, not all of who agree on any changes and each has a different constituency.
- Regulators are reluctant to be overly heavy handed lest they curb credit availability and stunt economic growth.
- Regulators are exposed to political pressure. Look who is in charge now and guess which way they lean.
- The process of making a significant change is lengthy, including comment periods, revisions, addendums, political interference from Congress, etc.
Fortunately, regulated financial institutions are hard to kill, so the regulators can be a bit sluggish because it is hard for a financial institution to do much damage without a few years in which to do it (absent fraud). In cases of fraud, someone is going to jail, and it ain't gonna be Club Fed.