Comptroller of the Currency Thomas Curry, addressing the City Club of Cleveland Wednesday, spoke on banks striking a balance between ensuring safety and soundness through proper risk controls while leaving room for innovative financing that can help revitalize communities.
Urban stabilization and revitalization have long been at the top of the OCC's national agenda, Curry said, and Cleveland and other Midwestern cities have seen their share of foreclosures, shuttered manufacturers, and population outflow during and since the financial crisis.
"We know that it takes imagination, innovation, resourcefulness, and persistence to truly transform a city. It also takes a huge investment of financial resources," Curry said. "As a regulator, I am deeply interested in the role that our financial institutions are playing, and must continue to play, in the revival of America’s cities."
Curry said that the banking system has "significantly recovered" from the economic calamity the nation suffered from 2007 to 2009.
"There are many reasons for this, including an enhanced regulatory regime that holds banks to higher standards of risk management and corporate behavior," he said. "Bankers today are focused on finding ways to show they can be profitable and responsible. And, in cities across America, and especially in places where the housing recovery is still lagging, bankers’ efforts are producing real results."
Curry cited as one examples of this the Cleveland community of Slavic Village, which was widely reported to have recorded more foreclosures than anywhere else in the nation in 2007 at the beginning of the crisis. An OCC-supervised institution has led the way in recovery by investing in community organizations. Another example is the Greater University Circle Initiative, which has "leveraged the combined efforts of area universities, museums, and hospitals, is another fine example of the public-private partnerships that are needed to carry out comprehensive strategies," Curry said.
The problem of foreclosures and abandoned properties has persisted in Cleveland and many Midwestern cities, and one way this problem is being addressed is through the land bank movement, Curry said. The land bank is a non-profit, government-affiliated entity which has adopted several strategies to acquire and dispose of foreclosed and abandoned properties.
"We know that it takes imagination, innovation, resourcefulness, and persistence to truly transform a city. It also takes a huge investment of financial resources."
"(The land bank) partnered with a local university to develop a data tool that now aids in the decision making about which neighborhoods and properties to target for rehabilitation or stabilization," Curry said. "Some 60 percent of the land bank’s properties are beyond repair and are slated for demolition. In many cases, banks are paying for the demolition cost on properties they donate so the Land Bank does not have to absorb that expense."
The land bank has developed a creative housing program to foster homeownership for properties that can be rehabilitated, Curry said.
A lack of credit access has been a concern in many cities, including Cleveland, since the crisis, according to Curry. He said, however, the issue of a lack of credit access "arises in part from certain misconceptions about supervisory standards and expectations." Curry said the OCC has raised expectations regarding credit underwriting and loan portfolio management since the crisis
OCC has raised its expectations regarding credit underwriting and loan portfolio management since the end of the financial crisis, but in some of the hardest-hit communities or communities with low-valued properties, the OCC's supervisory policies might present challenges in the lending process. That process becomes further complicated when these properties need substantial renovation, which must also be financed, in order for the properties to be habitable.
"We have tried to address these concerns by pointing out that the supervisory standards discussing the 90 percent loan-to-value limit for residential lending do not create an ironclad ban on lending above that limit, even if there are no credit enhancements. Indeed, the standards acknowledge that lending above that limit in excess of supervisory loan-to-value expectations can be consistent with safe and sound lending practices in specified circumstances, provided that banks maintain appropriate controls and otherwise comply with applicable law, regulation, guidance, and the bank’s own policies and procedures," Curry said.