Posts Tagged ‘Treasury Secretary Geithner’

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

Saturday, September 26th, 2009

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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Anonymous Banker Takes On Congress and the Banks

Wednesday, September 16th, 2009

It’s been almost one year since I wrote to the New York Times’s Joe Nocera and predicted that the Worst Is Yet To Come, and specifically pointed to the economic risks posed by the credit card industry. I’m saddened to say how accurate that prediction was. The banks did, in fact, come back to the Federal Reserve with their hats in their hands, and the Fed duly assumed their exposure from sub-prime credit card debt, disburdening the banks on behalf of the taxpayer. This program, among others, is considered by many to be the government intervention that saved the economy.

In truth, without the bailout of Fannie Mae and Freddie Mac, and without the TARP funds handed out to recapitalize many of the leading banks in this nation, and without the increase in FDIC insurance and the Money Market Mutual Fund Stabilization Program, our entire financial system and the very core of our economy would have been shattered. I do not dispute the necessity of these programs.

However, to declare victory–to even allude to the hope that, as Treasury Secretary Geithner stated, “We are back from the edge of the abyss”–is a tremendous miscalculation of what our future holds, and more importantly how the future is viewed by the people and small business owners of this nation. For above all confidence is the necessary ingredient, and it simply does not exist out here in the real world. Without a feeling of hope in our future, consumer spending will continue to lag, putting a tremendous strain on our nation’s small business community–on which there has been little, or dare I say, no focus by our government leaders.

While there is much rhetoric around programs to promote small-business lending, know this: the granting of SBA loans is in the hands of the very banks that have tightened credit until the small business owner cannot even breathe. The SBA has lending guidelines that the banks are ostensibly supposed to follow. But in the institution where I am employed, whenever I submit an SBA loan, it is declined. And when I inquire as to why it has been declined, I am given reasons that the loan does not qualify under the “bank’s” lending criteria. When I ask why they are holding the credit to the bank’s criteria and not to the SBA criteria (which is somewhat less restrictive), I am consistently told that the bank has a right to hold the credit to a higher standard than that imposed by the SBA. The banks that are given the authority to grant these loans have simply refused to apply the less stringent SBA criteria to the underwriting process!

Additionally, Congress would do well to implement regulations protecting business owners from deceptive credit card practices, deceptive merchant service credit card practices, usurous credit card rate increases, the passing of FDIC insurance premiums onto business banking accounts, the cancellation of credit lines when business borrowers have not missed any payments, and the increase in bank fees across the board for services such as wire transfers, checkbooks and ACH services.

Back to the banks. Of course they need to tighten underwriting standards. But most bankers state that the key reasons for making less loans is twofold: (1) lower demand for loans because borrowing needs declined, and (2) deteriorating credit quality of applicants.

Well, golly-gee-wiz! If the banks measure credit quality, as they do, by analyzing revenue and income trends, then clearly few applicants will qualify for loans during this economic depression! But I see business owners taking extreme steps to reduce expenses, commensurate with reduced revenues, and demonstrating their ability to manage their companies through this crisis. They still need funding, though, and there is simply no place for them to go since the banks have abandoned their fundamental obligation as lenders.

The lack of available capital to support our nation’s businesses has a direct impact on unemployment: if the business owner does not have confidence in his ability to obtain reasonable levels of financing, there will be no new job creations, and worse, an increase in unemployment.

Do I really need to spell out the domino effect that invariably ensues when that happens? Just one reason why I predict that unless there is a reasonable focus on small business lending, we will continue to totter on the edge of the abyss. The SBA has been known to lend directly in emergency situations, such as 9/11 and Hurricane Katrina. Is this economic crisis, combined with the banking industry’s general reticence to lend, perceived as less of a crisis than these events? Personally, I am not confident that our government will enact the necessary legislation to stimulate lending. I hope my prediction in this regard is less accurate than the one I made last November on the credit card bailout.

Reprinted from Bizbox

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