Fallout: The Financial Crisis

Small banks have difficulty lending too

Jeremy Hobson Dec 22, 2009
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Fallout: The Financial Crisis

Small banks have difficulty lending too

Jeremy Hobson Dec 22, 2009
HTML EMBED:
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TEXT OF STORY

BOB MOON: What’s the difference between big banks and small banks? Well, it seems the former get a stern lecture when they met with President Obama. And the latter, the community bankers, get an encouraging smile. The president sat down this morning with the heads of some of the nation’s smaller banks. He wants the same thing from them that he wants from the large banks — more lending. Easier said than done, they claim. Marketplace’s Jeremy Hobson reports.


JEREMY HOBSON: Dorothy Bridges was one of the bankers in this morning’s meeting with the president. She runs a one-branch bank called City First in Washington, D.C.

DOROTHY BRIDGES: We were all of the same mind that we want to do more small business lending. However, there are some barriers to doing so.

She says federal regulators are being too stringent. After a wave of failures, they don’t want banks taking risks.

BRIDGES: Higher capital requirements, or you’re marking to market certain assets. And certainly that is counter to what the president is asking us to do.

But aren’t all banks facing that kind of regulation?

Diane Casey-Landry is the COO of the American Bankers Association. She says the difference with small banks is that regulators have the time to second guess everything on the balance sheet.

DIANE CASEY-LANDRY: When you go into a smaller institution, they have the opportunity to go through literally every single loan. And then when you begin criticizing the loans, and you’re looking at every one, it can have a ripple effect throughout the institution.

Meaning a number of loans get downgraded, and the bank is therefore required to hold more capital. So what can the president do about that? Well, according to him not a whole lot.

PRESIDENT OBAMA: We are looking to see if there are possibilities to cut some of the red tape. We don’t have direct influence over our independent regulators.

And even if he did, Diane Casey Landry claims demand for loans is down. If that’s the case, the solution has more to do with the GDP than the FDIC.

In New York, I’m Jeremy Hobson for Marketplace.

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