Fed boss pushes loans for sound small businesses
June 3, 2010 Small businesses - more so than big companies - rely on bank
loans to expand operations and hire. Small businesses usually help
drive job creation during recoveries but credit clogs have hurt
hiring.
Lending to small businesses is declining even though the economy
is improving. Lending has dropped from almost $700 billion in the
second quarter of 2008, a period when the country was embroiled in
a financial crisis, to $660 billion in the first quarter of this
year, Bernanke said in prepared remarks in Detroit. Many lawmakers
on Capitol Hill have complained about small businesses wanting to
take out loans but having trouble getting them.
Bernanke, however, said it's difficult to divine whether the
decline in lending to small businesses was being driven more by
weaker demand or reduced supply because loans are harder to get.
Lenders and borrowers have different perspectives the problem, he
said.
"For example, some potential borrowers have been turned down
because lending terms and conditions remain tighter than before the
financial crisis, perhaps reflecting banks' concerns about the
effects of the recession on borrowers' economic prospects and
balance sheets," Bernanke said.
"From the potential borrowers' point of view, particularly a
borrower who has been able to obtain loans in the past, these
changes may feel like a reduction in the supply of credit," he
added. "From the lender's point of view, the problem appears to be
a lack of demand from creditworthy borrowers," he said.
Getting bank lending flowing more normally again is a delicate
dance for the Fed and other banking regulators.
As regulators encourage banks to make loans to sound borrowers,
they are also working to make sure banks get back on firmer footing
after suffering through the worst financial and economic crises
since the 1930s.
The Fed has been reaching out to small businesses in an effort
to come up with ways to help ease the credit problem. Bernanke's
meeting in Detroit was one of a series of such sessions the Fed has
been conducting. The findings from the meetings will be presented
in a conference at the Fed in the summer.
Bernanke didn't talk about the future course of interest rates.
The Fed has pledged to hold rates at record lows near zero to
support the recovery. It meets next on June 22-23.
In separate remarks delivered in Georgia, Dennis Lockhart,
president of the Federal Reserve Bank of Atlanta, said he supports
the Fed's current stance on rates. "The conditions that require a
change of policy are not yet at hand," he said. However, at some
point the Fed will need to start pushing up rates to prevent
inflation, he said.
Bernanke did observe that the country in now in an "economic
expansion, with jobs once more being created rather than
destroyed."
However, he said persistently high unemployment, now at 9.9
percent, is a "difficult issue" that imposes "heavy costs on
workers and their families as well as society as a whole."