Bank lending to small business drops despite TARP

Steve Chiotakis May 13, 2010
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Bank lending to small business drops despite TARP

Steve Chiotakis May 13, 2010
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TEXT OF INTERVIEW

Steve Chiotakis: The Congressional Oversight Panel’s released its latest report on the Troubled Asset Relief Program, TARP. It says Wall Street banks cut back on lending to small business by 9 percent since the bailout. The $700 billion in government help was initiated in part to open up lending. Harvard Law Professor Elizabeth Warren is chair of the Congressional Oversight Committee, she’s with us now from Washington. Professor, good morning.

Elizabeth Warren: Good morning.

Chiotakis: Is there something specific that banks don’t like, or is there a reason you think they’re reluctant to loan to small businesses?

Warren: Part of the problem is that it’s more expensive to loan to small businesses in the sense that you can’t do it just straight on the numbers — you know, let’s look at a credit score. You actually have to look at a business plan to do that. And that means large banks have gotten out of that business to a signfiicant degree and left it to intermediate-sized and small banks. Now it’s good for intermediate-sized and small banks to have some business there, but on the other hand they’re the ones who are also being hit by other aspects of the recession. You know, they’re going to have to be dealing with the serious commercial real-estate losses, and that means they may not be in a position to lend to small businesses.

Chiotakis: So Professor, if small businesses generate, what, two of three jobs in this economy, doesn’t this fly in the face of the necessity of bailing out the banks in the first place?

Warren: Well you know, that’s really the irony here isn’t it? Remember, in the fall of 2008, Secretary Paulson went to Congress and the American people and said, we need this $700 billion bailout, because if we put the money into the banks, that’s how it will make it on into the real economy. And the evidence shows that simply didn’t happen; we put the money into big Wall Street banks and that’s where it stayed.

Chiotakis: If you had a bullhorn and were on Capitol Hill right now, what would you be saying into that bullhorn?

Warren: I’d be saying, “Real economy, mortgage foreclosures, unemployment, small-business lending.” That stuff is tougher and grittier, but that’s where we get pay-off. We’ve got to invest in the real economy here, in folks who get up every day and go out and make things happen. Because if that part of the economy doesn’t recover, America doesn’t recover.

Chiotakis: Professor Elizabeth Warren, chair of the Congressional Oversight Panel. Professor, thanks.

Warren: Thank you.

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