Anonymous Banker: More bank bailout? Less Credit for Small Business?

FDIC press release dated September 24, addresses the sharp decline in the performance of   loan commitments of $20 Million or more.  These loan commitments are shared among US and Foreign bank organizations and non-banks such as securitization pools, hedge funds, insurance companies and pension funds.  For the layperson, a shared loan is one whose risk has been divided up among several institutions, each taking a smaller piece of the total loan commitment. 

I’ll let you read this yourself.  But here are some highlights:

  1. $2.9 TRILLION dollars in loans were reviewed.  Total borrowers:  5900
  2. There was a 72% increase in criticized loans, now  $642 Billion
  3. There was a 174% increase in classified loans:  $163 billion to $447 billion
  4. Special mention loans decreased from $210 billion to $195 billion
  5. Loans in non-accrual status soared from $22 billion to $172 billion
  6. Leveraged Finance Credits represented 40% of criticized loans:  $256 Billion
  7. Other Industy leaders?  Media and Telecom Industry: $112 Billion; Finance & Insurance:  $76 Billion; Real Estate & Construction:  $72 Billion
  8. FDIC Insured institutions have exposure to 24.2% of classified loans or $108 Billion, and 22.7% of non-accrual loans or $39 Billion.

This is not good news for bank capital requirements and therefore, not good news for small businesses that keep hoping and praying that the banks will start to improve  lending activities to their sector.  Simply put, if the banks are struggling with capital requirements, they simply will not loosen the purse strings anytime soon.

I’ve seen this several times in my career:  Corporate and investment banking runs amok and this results in Retail and Middle Market Banking taking the beating, right along with Retail and Middle Market banking customers.  Small and mid-size  businesses, along with consumers, will pay higher fees and higher rates, earn less in interest, and have less access to credit they depend on to run their businesses.  The banks will look to the small  business community to make up the losses created in their corporate and investment banking divisions.   30% interest rates on consumer and small business credit cards is a perfect example of this, especially when combined with banks PAYING interest on savings accounts at rates as low as .01% (Yes, that is one one-hundreth of 1%).

In the midst of these losses, Treasury Secretary Geithner proposed to the House Financial Services Committee that bank capital requirements be increased.  While I’m all for that proposal, and  I agree with most of his assessments, the immediate effect does not bode well for the small business community.  In the face of increased loan losses, Geithner’s proposal for higher capital requirements will  only increase the banking industry’s unwillingness to lend to the small business community. 

How then does Secretary Geithner expect to resolve this dilemma?  Well, that brings me to my favorite topic:  TALF.  Since April 7, 2009  the TALF program  laundered $46 Billion dollars in loans off of banks’ balance sheets and virtually guaranteed these loans with our tax dollars.  For the record, $21 Billion were credit cards loans, $10 Billion were auto loans, $4 Billion were Commercial Mortgages and a mere $580 MILLION were SBA loans.  As an aside, despite the new policy of transparency in these programs, I have been unable to obtain information which reveals which banks are selling these assets and participating in TALF.  This means I can’t tell which banks we are bailing out the most. I’ve been told by the FRBNY that this information is simply not available to the public.  Transparency, my tush!

Since the rules of the TALF program keep changing, it would not surprise me one bit if TALF morphed into allowing these Shared National Credits in on the deal.  First it was to be AAA rated loan portfolios, then they added sub-prime credit card and sub-prime auto loans and then they added commercial mortgages. Treasury Secretary Geithner indicated that he expected $1 TRILLION dollars in loans to be processed through TALF.   Perhaps the next change in TALF will allow the banks to divest themselves of  the $147 Billion plus dollars in toxic Shared National Credits, held by FDIC insured institutions.  

That move would certainly help improve the banks’ capital requirements.  But where would it leave the small business owner?   Without some form of strong government intervention, the banks will not move back into lending in the small business market anytime soon.  A move, I might add, that every government leader agrees is vital to our economic recovery.  Merely asking the banks to increase lending functions to the small business community, just isn’t working.    

I, for one, will hold Secretary Geithner to his closing remarks:  

“We must act to correct the regulatory problems that have left our financial system so fragile and prone to further trouble that Americans come to distrust it as a reliable repository for their savings and a stable source of the credit they need to conduct their lives and build their businesses.”

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One Response to “Anonymous Banker: More bank bailout? Less Credit for Small Business?”

  1. [...] — Thanks to a wise reader for passing along these insights about banks and lending; [...]

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