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The Fed and the Treasury Get It. Sorta.
By Bizbox
So here's some good news: the community banks--those small (under $1 billion in assets), locally-focused financial institutions that are prime sources for small businesses seeking ever-more-scarce credit--are getting a little extra encouragement to take a part of the $700 billion Uncle Sam is offering up (although even some healthy ones are loathe to take the money and then look like they needed it in the first place).
We learn this and more from Reuters' write-up of a hearing that the U.S. House Small Business Committee held late last week. Entitled "Review of Recent Federal Efforts to Improve Credit Conditions for Small Businesses," the hearing gave a space for testimony to Federal Reserve Governor Randall S. Kroszner and Acting Assistant Treasury Secretary for Financial Markets Karthik Ramanathan.
Oh look, here's Kroszner's testimony. (You can find more YouTube of the hearing here.)
The concrete news is that while publicly traded banks had to get in their applications for a capital injection from the government's bailout fund over a week ago, community banks have until Dec. 8. Clearly, the government wants more of them to opt in. That's a good sign.
But just as important is that it finally looks like the Treasury Department and the Fed--both of which more often than not have appeared, frankly, tone-deaf to the needs of small businesses during their management of the financial crisis--just may get it after all: get that small businesses are deeply struggling; and get that helping community banks is maybe the best possible way to send help.
Particularly reassuring was Ramanathan, whom Reuters quoted as saying of the community banks, "Many of these privately held institutions have strong, long-lasting ties with local businesses," and adding, "By providing capital to such institutions, Treasury is directly assisting small businesses so that they have the ability to make loans, mitigate funding pressures and promote growth locally."
Kroszner's apparent reassurance that the Fed's recent dramatic cuts in interest rates would spur lending to small businesses was the exact opposite of reassuring. Economically, of course, he's right on the money: the Fed has lowered rates; and, on paper, lower rates equals banks being more willing to lend. But on the ground, banks aren't lending. They aren't even lending out the government capital they're getting. Clearly more needs to be done: at least the Treasury guy, speaking of the community banks, seemed like he was on something resembling the right track.
Is it too late to bring up Democratic Sen. Chuck Schumer (N.Y.) and his proposal to lend billions directly to small businesses? We hope not.
Comments (0)November 24, 2008 9:27 AM
