Last week, President Obama met with community bankers to coerce - excuse me - encourage them to make more small business loans.
While mostly absolving the small banks from any blame in the recent banking crisis, Obama said the banks must begin lending more in order to help create jobs.
We all know what happened the last time the government decided to tell banks who they should lend to and what type of loans they should make, but this time will be different right?
After all, according to most of Obama’s advisers, the recession is over and that must mean banks are in even better shape to make loans than they were a few years ago.
Well, not exactly.
The number of at-risk banks increased 80 percent in 2009 and the numbers are expected to rise in 2010. At the end of the third quarter, there were 552 problem banks with total combined assets of $346 billion – a 33 percent increase from the previous quarter.
The Federal Deposit Insurance Corporation (FDIC) has increased its 2010 budget by 55 percent and its staff by 23 percent – an indication of serious problems on the horizon.
By government estimates, banks will need over $600 billion to fund impending loan defaults. That estimate could be completely wrong since we have yet to see the effects of the upcoming resets on Alt-A and Option ARM mortgages. If best guesses are that the losses from those loans will reach $1.1 - $2.6 trillion, then $600 billion will barely make a dent.
As bad as those numbers are, there are still billions more in potential losses from commercial real estate loans, corporate loans and bonds, credit card debts, auto loans and more.
The government can only keep buying up asset-backed securities and refinancing problem loans for so long. Sooner or later, the banks must pay the piper.
In anticipation of that day of reckoning, the government is requiring banks to maintain more capital reserves to cover potential losses.
The FDIC is also requiring member banks to pony up three years worth of insurance premiums in advance. At a time when banks can least afford it, the FDIC is forcing them to cough up money that will likely be expended long before the next premium bill comes due. Since premiums are based on a bank’s assets, the more a bank has, the more it will have to pay the FDIC.
Not only do these governmental and FDIC requirements reduce the amount of money available for lending, they suppress already low CD and money market rates as well as reduce investor dividends. This is bad news for an industry that makes money by attracting depositors with attractive interest rates and then loans out that money to achieve greater returns for its shareholders.
Our banking system is in trouble. We do not need the Banker-in-Chief forcing banks to open their vaults just because it is politically expedient to do so. We need a return of sound, pre-Community Reinvestment Act lending practices so that banks can once again turn a profit by lending to credit-worthy borrowers who can actually repay their loans.
Kristi Reed is a reporter for the Barrow Journal. She can be reached at kreed@barrowjournal.com.
Columnist Reed seems to think there is nothing else to write about besides "Obama bad, Obama evil, Obama bringing down America, I believe all the talking points of Fox News, I can't form a thought on my own unless Rush Limbaugh signs off on it."
It has long since gotten boring and beyond absurd.
I have great hopes that next year, I can get a loan and expand. I know I will have the clientele to support this increase in business; I've had to turn away business because I put things on hold.
Small business loans help with expanding the business; I've never been late, have excellent credit and never had a problem getting a loan.
I MY DEAR MS. REED ARE ONE OF THE PEOPLE WHO BENEFIT FROM SBA LOANS. You also seem to have forgotten Bush started the "bailout" to his banker / finance buddies.
I get that you are a ultra right wing, ultra conservative republican. Sadly you are one of the "new" republicans who have forgotten what republicans once stood for.
In God We Trust, is not a motto, it is who we are. Should we put our trust in God then we truly trust each other. Trust can not be placed in the State, when it comes to business affairs. Business is a private enterprise for private commerce. The State is not the source from which morals and straight dealings were neither created nor maintained.
Press on Ms. Reed