According to the October 2009 Senior Loan Officer Opinion Survey, lending standards remain tight. The good news, according to the survey, is that tightening standards have eased somewhat from the “peaks reached late last year.”
While we know this general information comes as no big surprise, we believe it’s important to review the current lending conditions to determine if consumer and business lending is headed in the right direction.
Citigroup is the third banking institution to release “better-than-expected” first-quarter earnings this week — but some of their customers, as well as the Treasury Department, are not impressed — frankly they’re concerned.
An accountability report released this week by the Treasury Department revealed that lending amongst the nation’s largest banks declined by six percent in February from the month prior. The Department has become so concerned with the lack of lending amongst TARP banks that it launched a Federal probe to investigate the matter.
In response to overwhelming customer complaints, a Congressional committee has launched a probe in order to examine the lending practices at the banks which have received TARP funds:
Elizabeth Warren, chairwoman of the Congressional Oversight Panel, the body named by Congress to oversee the federal bailout, said the panel is working on a report examining instances of potentially inappropriate lending by banks that got taxpayer capital. “The people who are subsidizing the activities of the banks through their tax dollars are the same people who are furnishing the high profits through consumer lending,” Ms. Warren said in an interview. “In a sense, we’re asking taxpayers to pay twice.”
Banks across the country are saying they’re stuck between a rock and hard place, as their regulators are sending them mixed signals. Being strongly encouraged to expand consumer lending, while informally being pushed to raise and hold extra capital has banks confused — further complicating the restoration o our financial system.
Federal Reserve Vice Chairman Donald L. Kohn addressed the “The Role of Regulators” earlier in December, when he spelled out both the increased actions by the Federal government designed to encourage lending, as well as the need for financial institutions to hold reserve capital.
The Federal Reserve announced today the creation of the Money Market Investor Funding Facility (MMIFF), a federal unit designed to promote the private purchase of commercial paper from money market mutual funds. The MMIFF is the latest in a string of initiatives designed to unfreeze the credit markets. Short-term lending especially has suffered through the credit crunch.
Commercial paper is a critical form of short-term lending relied upon by many businesses to finance their daily operations such as paying bills and employees: Read the rest of this entry »
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