VIEWPOINT: Help Small Banks Help Small Businesses
Thompson, Mick, American Banker
Byline: Mick Thompson
Until recently, the government's response to the financial crisis has largely focused on stabilizing the nation's largest financial institutions and preventing a complete collapse of the national economy. Two initiativesannounced this month to spur small-business lending, the administration plan to invest $30 billion to establish a small-business lending fund for community and regional banks and the Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers, represent a new and overdue focus on economic recovery.
The policy shift stems from the acknowledgement that small businesses are the largest creators of private jobs and are vital to our economic recovery. Since the vast majority of the nation's 8,100 insured financial institutions are community and regional banks that are heavily engaged in local economic development, they must play a critical role. Because of their proximity to and knowledge of local economies, these community and regional banks are best poised to lend to small businesses.
During the recession, the largest banks generally have cut back on lending to conserve capital for their survival. Community and regional banks, however, continue to make credit available for creditworthy individuals and small businesses. As the Interagency Statement notes, small-business lending rose slightly at many institutions withassets of less than $1 billionbetween June 2008 and June 2009 and fell more than 4% at institutions with assets of more than $100 billion.
This reaffirms the need for Congress and the administration to engage in regulatory reform that addresses and ends "too big to fail." Previous economic policies allowed for a handful of select institutions to grow beyond the controls of our system of oversight. These firms were allowed to flourish in an environment that encouraged their growth and complexity.
These policies propped up a cadre of "too big to fail" firms to the detriment of community and regional banks, and ultimately to the detriment of the U. …