Government not helping CIT so far

TEXT OF STORY

Stacey Vanek-Smith::Financial institutions may be looking pretty good on the whole, but as Sam said, they're not all out of the weeds. Lender CIT is desperately trying to prevent a run on its funds. You might not have heard of CIT. That's because the 100-year-old lender specializes in financing for businesses, not consumers. But the company's troubles could have some big implications for Joe Q Public. Marketplace's Mitchell Hartman has more.


Mitchell Hartman: CIT provides crucial day-to-day financing to the likes of Dunkin Donuts and other retailers. Its lines of credit are used to fund inventory and make payroll.

CIT said in a statement Sunday that it's in talks with government banking regulators to improve its cash position. The bank's already gotten more than $2 billion from the U.S. Treasury's TARP program. Further financing help the FDIC, though, doesn't look very likely.

Regulators appear to think CIT's demise wouldn't pose systemic risk to the banking system, because small businesses could get financing from other banks. But management consultant Peter Cohan doesn't think that's very likely.

Peter Cohan: They are very reluctant to take on the risk of lending to a small business, which is probably, you know, suffering, because small businesses in general don't have the excess resources to help tide them through tough times as the larger businesses might.

As many as 300,000 retailers, and hundreds of manufacturing firms, could be at risk if CIT's lines of credit and other financing services go away.

I'm Mitchell Hartman for Marketplace.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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