Arlington, Virginia – Putting political pressure on the nation’s banks, Federal Deposit Insurance Corp. Chairwoman Sheila Bair called Monday for borrowers to identify and report banks that aren’t lending to consumers and small businesses.
After a speech on other topics, Bair spoke about tight credit conditions in response to a question at a gathering of business economists just outside the nation’s capital.
“A light needs to be shined on this and explanations need to be made where credit is not being provided,” Bair told members of the National Association for Business Economics.
Her comments followed her agency’s recent release of 2009 bank industry data that showed a 7.4 percent contraction in lending, the largest since 1942, the first year the United States fully engaged in World War II.
While advocating public pressure on lenders to offer loans, Bair stopped short of supporting any government mandate to banks to make a minimum amount of loans, warning that “the history of that isn’t good.”
Economists at the conference said that lending to large corporations had resumed, and they cautioned that banks often have good reasons for keeping credit tight for smaller, less-proven firms during a tepid economic recovery.
“I think one of the problems is regulators are trying to have it both ways. They want the banks to lend, but they don’t want them to take any risks,” said David Wyss, the chief economist for the credit-rating agency Standard & Poor’s. “And when you’re looking at small business, you’re looking at risk.”
Treasury Secretary Timothy Geithner told Congress last month that overzealous federal and state bank regulators are hampering the banks’ ability to lend, offering a rival view to Bair’s belief that banks can lend but don’t want to.
Chris Varvares, the president of the economic forecaster Macroeconomic Advisers, said that the Federal Reserve and other regulators had encouraged banks to take a benefit-of-the-doubt approach when determining whether to extend or maintain lines of credit to businesses.
“I think there is from the top a view that they’re encouraging banks to do the right thing,” Varvares said.
In some cases, he cautioned, some banks “clearly need to be stingier” because of big portfolios of bad loans. These banks are generally smaller community banks that underwrite loans to small firms and also to developers, who are struggling to make loan payments because of the downturn.