Bernanke Presses Banks On Small Biz Lending

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WASHINGTON – Federal Reserve Board Chairman Ben Bernanke put the onus squarely on banks to remedy small-business owners’ continuing complaints about the limited availability of credit.

“We have heard the often-expressed concern that bank examiners have prevented banks from making good loans,” Bernanke said yesterday at a conference on small-business lending hosted by the central bank. “Our message is clear: Consistent with maintaining appropriately prudent standards, lenders should do all they can to meet the needs of creditworthy borrowers. Doing so is good for the borrower, good for the lender and good for our economy.”

According to American Banker, an affiliate of Credit Union Journal, a preliminary report by the Fed, based on meetings it held nationwide, found small businesses blame tougher underwriting standards for making it more difficult to access credit. They also acknowledged that lending standards seem to have returned to more traditional underwriting practices that existed before the economic downturn.

“The challenge ahead for lenders will be to determine how to assess the credit quality of businesses in an uncertain and difficult economic environment,” Bernanke said. “It is in lenders’ interest, after all, to lend to creditworthy borrowers; ultimately, that’s how they earn their profits. Regulators, for their part, need to continue to work with lenders to help them do all that they prudently can to meet the needs of creditworthy small businesses.”

Loans to small businesses declined from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010, according to data cited by the Fed.

Restoring lending to normal levels has been one of the Fed’s key priorities to stimulate an economic recovery and reduce unemployment levels. Starting in February, the Fed held more than 40 meetings across the country on the state of lending for small business in cities such as New York, Chicago, Morgantown, W. Va., and Little Rock to help develop policies that support the flow of loans to creditworthy borrowers, American Banker reported.

 

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