Banks sell off loans to clean books; investors take over notes at discount

As federal regulators examined financial institutions throughout the nation this past year, their mantra to every bank, healthy or not, was the same.

Improve regulatory capital ratios.

In other words, banks were told to increase the amount of financial capital they set aside to support and safeguard their loan portfolios.

But in this economic environment, raising cash is a tough task.

Many banks are left to approach the directive from the opposite end of the equation. If they can’t increase their regulatory capital, they have to decrease their lending portfolios.

As many borrowers can testify, it has forced banks to reduce and restrict lending. Naturally,…