Regulators to banks: Get off your butts and lend

The government’s program of using taxpayer funds to bolster banks’ capital was supposed to be "passive" -- meaning, Uncle Sam wasn’t going to take an active role in managing the businesses.

But a joint statement today from the Treasury, the Federal Reserve and the Federal Deposit Insurance Corp. on bank lending hardly sounds passive.

In the statement -- titled, "Meeting the Needs of Creditworthy Borrowers" -- regulators’ frustration with still-frozen credit markets is evident. And they’re now essentially demanding that banks boost lending.

Tony Crescenzi, bond market strategist at Miller, Tabak & Co., calls the statement "a strong-arm tactic that ostensibly takes advantage of the power that the government now has over banks and other financial institutions."

The memo doesn’t "request" action -- it "expects" action.

Key points in the statement:

--- "The agencies expect all banking organizations to fulfill their fundamental role in the economy as intermediaries of credit to businesses, consumers, and other creditworthy borrowers."

Although regulators of course nod to the idea of lending responsibly, they warn that "if underwriting standards tighten excessively or banking organizations retreat from making sound credit decisions, the current market conditions may be exacerbated, leading to slower growth and potential damage to the economy as well as the long-term interests and profitability of individual banking organizations."

--- "The agencies expect banking organizations to work with existing borrowers to avoid preventable foreclosures, which can be costly to both the organizations and to the communities they serve, and to mitigate other potential mortgage-related losses."

--- "The agencies expect banking organizations to regularly review their management compensation policies to ensure they are consistent with the longer-run objectives of the organization and sound lending and risk management practices."

--- And a final point that won’t give any comfort to bank shareholders fearful of more government intervention: Regulators warned that banks "should not maintain a level of cash dividends that is inconsistent with the organization’s capital position, that could weaken the organization’s overall financial health, or that could impair its ability to meet the needs of creditworthy borrowers.

"Supervisors will continue to review the dividend policies of individual banking organizations and will take action when dividend policies are found to be inconsistent with sound capital and lending policies."

Photo: Treasury Secretary Henry M. Paulson today. Credit: Carl T. Powers / Bloomberg News

Comments

[joe the schmoe]

Get off your butts and lend.

Sure that sounds good: lots of feel good issues packed in there (accountability, fiscal conservatism, fairness to taxpayers, ....).

Lend to whom?
Businesses are cutting back right now, so they are not exactly out there looking for a new line of credit. Providing $$$$ to make sure our financial system doesn't collapse is half of the job, the other half is stimulating business activity, unfortunately that requires some vision and figuring something other than credit-fueled consumer spending for gadgets and toys, building more homes or more cars. That for sure is not going to happen during the "lame-duck" transition phase.

[Mark Jager]

We need to fire all the ceos of the banks we lent money to. This is the worst crisis since the depression it may even maybe worse than that and the banks who got us into this mess in the first place are screwing U.S. again. We need a temporary take over of the banking industry until we can replace the boards and ceo's with responsible adults .

[Mr. Tate]

This is directed to Mr. Tony Crescenzi's statement. In my opinion, the statement from government regulators was not strong enough. Where do you think that 700 B is coming from? Taxpayers! As being a fellow taxpayer, YES, GET OFF YOUR BUTTS AND LEND to responsible, creditworthy borrowers! What is the banking community waiting for, a total collapse of the economy first? That's what this whole deal is about...preventing a collapse and get on the road to recovery. HELLLOOOO!

[Tony]

Yes, please lend more money and put everyone in debt up to their eyeballs. Please, we can't prevent prices of goods from deflating. Lend, lend, lend!

[SKV]

It is too late. We are in recession cycle when reduction in consumer spending caused businesses scaled down. So businesses lay off more people and consumer spending goes down. Lets wait until gov employees us all for food on infrastructure projects. Just what infrastructure are wee going to build?

[Jimbojrre]

I too believe the banks should be required to lend the money they receive from the fed and the bailout at 4% to jumpstart the economy and the housing market. And the Fed should continue to lower the discount rate, but require any banks receiving such money to reloan the money at 1-2 % over the discount rate.

[TWstroud]

Paulson utterly failed to impose proper preconditions prior to lending. Shawn of the Dead could have told you to demand no bonuses, cancel all options, your pension is in the kitty, get rid of the pac-lobbyist-hunting lodge... the list goes on. Paulson needs to learn from Woody Allen in Play it again, Sam. To the crying banker, "Sorry to have to slap you around, but you got hysterical when I said 'No more""

[Dave]

The safest bet on spending that $700 B++ would have been to divide it equally among every US citizen. Too late now, AIG is partying it away and the banks are just trying to recover their losses.

[Harry N]

This is retarded.

1) if you lend to people who can't afford to pay it back they will call it predatory lending. But If you don't lend because people are losing jobs and they don't seem that credit worthy you will be told to get off your butts.
2) Banks will either bet on crazy things like Credit Swaps that are leveraged 34 times. But the same banks find people who are leveraged 1 or less more risky than those credit swaps Ponzie schemes.
3) Banks would rather loose almost all the money by foreclosing the home than reduce the loan amount and recover most of the money in the long term.

[jb]

I would have rather given my money to strippers and crackheads than Paulson.

[durod]

lend us our own money... what a scam.

[Rosie]

FIRE THE TREASURY AND THESE BANKERS - THEY ARE A DISGRACE.
PAULSON SHOULD BE ASHAMED OF HIS VERY POOR JUDGEMENT BUT THEN HE'S EX-GOLDMAN AND THEY ALL HAVE VERY POOR JUDGEMENT IT SEEMS.
IT'S A DAMNED DISGRACE.

[Joe]

Lend me some money so I can avoid foreclosure.

[Robert NO longer in LA]

Stop moaning and get ready to FIRE pelosi, frank, reid and all the 'Uncle Tired Old Men' Obama is bringing back from the clinton (repeal Depression era rules! and, Pardon the fugitive Wall Street felons!! and best of all, Get my wife a senator's job!!!) era. This 'Change' is beginning to smell just like bush's cabinet of daddy's hacks and thugs. You got 1 chance P.E. Obama - YOU, had better make it work, or you'll simply be a historical flash in the footnotes of history...and, spending the rest of your life trying to UNDO it.

[Melrose Sam]

Instead of giving money to banks in hopes that they will lend it to the American people. Why doesn't the government just lend the money directly to creditworthy people through Fannie May or one of these banks the FED had to bail out? I am not talking about just under qualified, poor, first-time homebuyers. I think the government should lend to everyone who is creditworthy at good rates and good terms (unlike the banks). This will unfreeze the credit markets by taking their business away from them until the banks catch on and have to lower their rates and improve their terms to compete.

[Curious George]

I continue to hear how does America feel about all of this. My America by the way.
Here is how I feel, simple, something deeper is happening, Looks to me like the ultimate bank job unfolding before us, and it is an inside job beyond the pale. What a movie plot for you Hollywood folks.
But this one is real, we best get to the bottom of this and do a little prosecuting in my perspective, or we are simply going to face this again at some point.
Find them, and don't bother barring the door from the mob.
Wouldn't it be amazing if it is all the ultimate October surprise? Who cares if an election goes either way if they (unknown self interested parties) have all the cards up their sleeve.

[Benny%20Gunns]

More Lending, more credit... This doesn't seem like an answer for the lowly wage earner or the small businesses of America. The only answer is more jobs -- yes infrastructure, but also reverse the outsourcing, bring back some jobs.

A small job at a call center, and a guy pouring concrete in a new road, this is the foundation of a stable economy. The problem with trickle-down is it never makes it down, and seems like its just horded at the top.

[James Sullivan]

Banks to regulators: drop dead. we have your money and evidence to prove that you aided and abetted the economic collapse.