Spinning Out of Control

August 24, 2012 at 7:55 am Leave a comment

The banks have done so much spinning on credit union small business lending that they are beginning to contradict themselves.  Don’t take my word for it, take these quotes from an article in Inc., which, by the way, was written by a former reporter for the American Banker. 

  • Community banks have made a decision to decrease lending to small businesses.  According to James Chessen, chief economist for the American Bankers Association, “[b]ecause capital has been so hard to raise over the last four years, the simplest and most straightforward way has been to shrink assets, which means loans.” 
  • “The need to repay TARP capital is what depresses [community banks’] lending ability,” says Rob Klingler, an attorney for Bryan Cave, a global business litigation firm” that represents many community banks.
  • Many community banks have decreased lending during the same period they have taken funds from the Small Business Lending Fund.  The program is operated by the Treasury and provides capital at interest rates tied to the value of small business loans that a bank makes.  According to Inc., “many community banks in the program have, controversially, used the money to pay off TARP rather than lend to small businesses.”  To be fair, some credit unions have also been eligible to receive funding from the Treasury under this program, but this is not because of their status as credit unions.

So here’s the situation according to bankers:  despite the fact that many community banks have received funding from the federal government, they have been unable and/or unwilling to lend to small business.  This is a direct and negative impact on economic growth since small businesses disproportionately depend on community banks for their loans.  Part of the decrease in lending, but by no means all of it, can be attributed to an economy that makes small businesses hesitant to take on new loans.  Even if you accept everything the bankers say is true, doesn’t it make sense to maximize the number of institutions that are willing and able to provide small business loans?  To me the answer is obvious, but then again, I am not a member of Congress running for re-election.

Going Fishing

I’ll be off next week enjoying the rest of August with my family and getting up a bit later than usual to yell at the newspapers.  I’ll be back after Labor Day to begin the blog’s second year.  Enjoy the waning days of summer and remember, in the immortal words of Billy Crystal,  it is better to look good than to feel good.  Since I won’t be commenting next week, here are my predictions for next week’s Republican convention. 

  • In an effort to upstage the Republican convention and demonstrate that he is a centrist, President Obama dumps Vice President Joe Biden and adds Missouri Senator Todd Akin to the ticket.
  • Republican Vice Presidential Candidate Paul Ryan invites the nation to join in a prime time P90X workout.
  • Mitt Romney explains that  his governorship in Massachusetts was just a dream sequence filmed for an upcoming episode of the re-launched Dallas.

Entry filed under: General. Tags: , , .

Four Reasons the Economy’s In The Crapper And Likely to Stay That Way Gone Fishing. . .

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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