FDIC Chair Sheila Bair: Big Banks Still Aren't Lending Enough

I was surprised that the story below didn't get much press.

I'm not sure if it is because everyone trying to get a loan, whether to buy a house or a car or expand a business or even start business already knows this so the media thought, "no need to report it, they already know."

But when you think about the fact that the nation's largest banks were posting record losses just a year ago and today they posting profits, one has to wonder how the turn around happened. If your deposits are not increasing because Americans are struggling to make ends meet then you must have stopped loaning money.

I am not advocating loaning money at previous levels to those without the ability to repay the loan unless they hit the lottery, but in today's current lending environment getting loan can is very difficult and can be a long drawn out task ...

FDIC Chair Sheila Bair: Big Banks Still Aren't Lending Enough

Wednesday November 11, 2009 8:17 a.m

By Associated Press

NEW YORK (AP) — The head of the Federal Deposit Insurance Corp. said Tuesday she's "very worried" that the nation's biggest banks aren't lending enough and warned the economy could take another turn for the worse without increased access to credit.

FDIC Chairman Sheila Bair said the FDIC's upcoming quarterly report would show that "not many large institutions are doing a very good job of lending." Instead, she said, some are taking advantage of near-zero interest rates by borrowing dollars cheaply to buy higher-yielding assets like stocks or commodities — a move known as the "carry trade."

"I don't see much money going out (from banks). I see a lot of carry trade," Bair told a banking conference in New York. "It used to be you take deposits and you lend out money. We'd like to see more of that."

Many banks have tightened lending standards following a wave of residential and commercial property defaults. Others say they want to lend but see little demand as consumers and businesses seek to pay off debt, not take on more.

The lack of lending by large banks is dangerous at a time when many small and midsize banks are teetering on the brink amid the economic downturn, Bair said.

"I'm very worried (that) the larger institutions don't seem like they're stepping up to the plate providing credit," Bair said. "Because if they don't do that, we're all in the soup."

Addressing the rash of bank failures, Bair said the FDIC had enough funds to shut down troubled banks and would tap its line of credit with the Treasury only as a last resort. There have been 120 bank failures this year, and Bair predicted "many more" ahead.

On the regulatory front, Bair reiterated her agency's bid to require banks to hold more capital as a buffer against rough times, even if it eventually reduces the amount of funds available to lend. She said the requirement would not only protect banks but could also help prevent asset bubbles by reducing excess credit in the financial system.

"I think we have the authority and hopefully the will to do that," she said.