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

NEW YORK — 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.

Comments

[HST]

The=Then

[HST]

"Others say they want to lend but see little demand as consumers and businesses seek to pay off debt, not take on more."

So is that why they are raising interest rates to around 30% on consumer credit?

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."
The break them up into smaller institutions in line with the repealed Glass-Steadman Act.

[CaptainHowdy2]

They will never again lend at previous levels to Americans.

They have bled the country dry of it's wealth and Americans are too much of a risk to lend to anymore.

They will now move on to other developing nations like China and India so they can start bleeding them dry.

[jerrypl]

Ms. Bair is terrific. She is out there raging on against the banksta theft and how they are not lending as they should. The banks are afraid to lend because they know the future of our economy is grim and they may not get paid, so they are allowed to take cheap cash passed out by the Fed to gamble at the Wall Street Casino. PLEASE---MR. PRESIDENT, TELL AMERICA THE TRUTH ON THE ECONOMY. THE WHOLE TRUTH.

http://eye-on-washington.blogspot.com

[nopilikia]

Forget the banks, use your local credit union. They provide all the services a bank does save one. They don't try to scr-w you at the drop of a hat. Because at a credit union your considered family.

[World Citizen]

I've lived in France since 2000. There's hardly a recession here. Perhaps USA can learn from France?

1. French people hardly know the word 'credit'.

2. French government spends a lot of money on their public education system. French people don't need to get into massive debt to obtain a university degree. In most cases, a student can obtain a monthly subsidy to help out with his flat rental.

Obama wants math and sciences to be cool. Make them cool by massively improving our public education system. Attract good teachers by increasing their pay. Make getting an education free. This way our people wouldn't have to be burdened with massive student loans. They'll pay it back into the system in any case, once they start working.

3. There's training and retraining here. Employers are required to train their employees. People here can get retrained if they want, making it easy to transition into another line of work.

4. UNIONS are quite powerful in France. Outsourcing is not quite as blatant. Indian programmers are rare. Bringing in foreign labor is usually not tolerated by the UNIONS.

5. French government has always subsidized new companies. It has an agency that will guarantee 50-80% of credit that a business needs.

If the banks in the U.S. are not extending credit and OBAMA wants credit to flow to SMEs, why doesn't he set-up an agency and put up the funds to guarantee credit needed by deserving SMEs?

[CaptainHowdy2]

Very good points. If Obama was sincere about jump starting the economy, he should start a program that lends directly to businesses instead of the banks that just turn around and put the money back into the Wall Street casino.

[blueken]

Trust my friends. It all boils down to trust. The banks don't trust the customers. The customers down't trust the banks. The banks and investment houses don't seem to have learned a thing. The consumers are all worried about getting laid off. Companies that are still in business are in survival mode. I think the the whole economy would like to see more common sense. I know I'm sitting on the edge of my seat wondering how long the wealth of this nation can go to the top 1%. A rational mind figures that at some point there will be no customers. Just homeless, out of work people. Well, I guess if that happens the cost of pool maitenance and landscapeing will go down for some. Is that how the rich want to live? The supply side trickle down economy has had it's run. Time to go back to pay as you go, with sensible regulations to protect the common wealth. Fraud is not an "innovation". Cannibalism is not a "business plan."

[World Citizen]

Elizabeth Warren, 15 minutes of? Why not? I'm glad she's speaking up.

[TakeTheCanolis]

Big banks are in instead using capital to buy out smaller banks. We need another Teddy Roosevelt to stand up to them. So far, Obama hasn't risen to this role. FDR said banks should be regarded as a public utility -- a means to assist the rest of commerce -- not an end to itself.

[CaptainHowdy2]

Yep, I agree. Both banks and insurance companies should be public utilities.

Whys should the Fed lend money to banks just so they can mark it up and lend it to us. The Fed should lend directly to the people without an unnecessary middle man.

The whole system is a scam.

[cainemain]

Why anybody would have their cash in a large bank right now is beyond me. How many headlines does it take before you start to think BA or Wells Fargo are a horrible place to put your money.

YOU ARE WHO YOU GIVE YOUR MONEY TO!

[Gumpster]

Considering the uncertainty of bank regulation, legislation, and other scrutiny, along with the high unemployment, I am not surprised banks are hesitant to lend.

Would you go to work everyday if your employer said "I don't know how much I am going to pay you (if at all), or even what work you will perform, but I expect you to be here at 8am each morning)?

[drymartini1]

This article is ridiculous !!

of course the banks are not lending !! They should be very careful regarding lending right now.

commercial real estate defaults are soaring !! bad loans on the books. Personal bankruptacies going higher that means banks have to eat a lot of credit card debt !!

and you are suggesting they should lend more ?

[sonofsamphm1c]

Add to that the fact that the economy is now smaller, and a smaller economy will have less lending - especially one where your list is a reality.

The banks want to survive 2010. For them to do it, lots of capitalists will have to start getting incredibly greedy and hiring some people so they can get fabulously richer. And to do it, they will need loans and investment.

Screeching about limiting pay and 90% taxation on all bonuses is scre*ing the unemployed.

[vinny]

yep. that was the whole point of the bailout...

[nopilikia]

And who pray tell started this ball rolling? They loaned like no tomorrow before. Now that the taxpayer covers their loans, it should be loan, loan, loan.

[CaptainHowdy2]

Then why did we bail them out?

In the meantime, they have no problem investing in more risky products such as CDOs and CDS'.

[LunaPark]

Do you know why the banks are not lending Sheila? Try reading up on Austrian Economics.

[sonofsamphm1c]

Look, while I would love to see her waste her time as she is an opponent of President Obama, I wouldn't wish reading that garbage on anybody.

[LunaPark]

Good for you. Dismiss an entire Nobel Prize winning body of work as garbage. Wow, your critical thinking skills are amazing.

[BillMyers]

No jobs equals no loans. No loans equals no jobs. No investors equals no capital for small business.
No small business equals no America. It's really pretty simple.

Bill Myers
VDOAKTV.NET
A small American business

[drkazmd65]

To my mind,... this is yet another example of how & why commercial­/individua­l lending institutions should have remained firewalled off from the 'investment' banking 'industry'.

IF we made it impossible (or at least hard) for actual banks to get into things like the 'carry trade', THEN they wouldn't be taking our taxpayer dollars and playing with it in the markets.

They WOULD be using it to invest in homes, small businesses, and Main Street.