In addition, small businesses and banks alike attribute a significant portion of the tightened credit environment to regulatory uncertainty and, in particular, to concern about the classification of assets by bank examiners. I do not believe it is appropriate or even possible for regulators to urge banks to make loans that are outside their risk tolerance or that would be unsafe or unsound.
But we can and should be sure that supervisory policies do not impede the flow of credit to all eligible borrowers. That’s why the Federal Reserve and other regulatory agencies have worked so hard during the past few years to ensure that while banks appropriately recognize loan problems they also can continue to make loans that are safe and sound.