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  • SBA: Small Business Lending Dropped $43 Billion from June 2009 to June 2010

    In case there was any doubt small businesses have suffered from a lack of access to credit during the recession, CNN Money 's Catherine Clifford shares some data from the Small Business Administration. The total value of outstanding loans to small businesses plunged by $43 billion, or 6.2%, between June 2009 and June 2010, according to a report released this week by the Small Business Administration. That's a drop of $59 billion, or 8.3%, from June 2008. Measuring lending to small businesses is like trying to nail Jell-O to a wall, because every institution and government agency has its own definition of what constitutes a small business. For this week's study, the SBA drew on data reported to the Federal Deposit Insurance Corp., which tracks lending by the banks it regulates. Both the SBA and FDIC assume that all commercial loans of $1 million or less went to a small business. Read the full article here .

  • Clevelane Fed: 'Continued Weakness in Small Business Lending'

    Small businesses are still having trouble getting loans. Take a look at the trend for business loans under $1 million over the last decade: And of the loans under $1 million, most are under $100,000: These charts are from a recent post by Matthew Koepke and James B. Thomson of the Federal Reserve Bank of Cleveland . Koepke and Thomson took a look at the decline in small business lending, and found a lot about which we should be concerned: in particular, the decline in the smaller loans. From the 2000 to 2008, the increase in small business loans was driven by an increase in the number of loans made. The general decline in the average small business loan made over this time period was due in large part to strong growth in the number of loans under $100,000. While the average growth in the small business loan portfolios of banks and thrifts through 2008 was 13 percent, the number of loans under $100,000 grew 14 percent compared to 6 percent and 7 percent for loans between $100,000 and $250,000 and loans between $250,000 and $1 million, respectively. From June 2008 to June 2010, the shrinking small business loan portfolios of FDIC-insured institutions have been driven by a combination of shrinking loan balances (falling 4 percent a year) and declines in the numbers of loans (falling nearly 9 percent a year). Again, the reversal of growth in the number of loans has been driven by the decline in the number of loans under $100,000, which declined nearly 10 percent a year between June 2008 and June 2010. In comparison, the number of loans between $250,000 and $1 million fell only one percent a year and those $100,000 and $250,000 fell only 4 percent a year over the same time period. Read the full article here .

  • WSJ Interactive Map Tracks Bank Failures

    The FDIC closed 9 banks in one day last Friday, including California National Bank of Los Angeles, which had 68 branches throughout the city. CalNational and the 8 other banks, which were also in Illinois, Arizona, and Texas, were all divisions of the Chicago-based bank holding company FBOP Corp, according to the Associated Press . 115 banks have been closed so far this year, and 140 since last November. One of the best tools we've found to track the bank closings comes from the Wall Street Journal online team. Click here to use an interactive version of the below map, on which you can see where the closing have hit, and get details about each bank. (H/t to Barry Ritholtz for the reminder about this interactive map).

  • The Destructive Power of Yes: Seattle Times on the Failure of WaMu

    A little over a year ago, the FDIC seized the assets of Washington Mutual on the bank's 119th birthday . it was the largest US bank failure ( Reuters ), and the roots of the failure had a bit to do, ironically, with the message of a WaMu ad campaign--The Power of Yes: The Seattle Times breaks down the WaMu failure in today's paper, and, in a story now all too familiar, it appears that the thrift was all to happy to say yes just about anybody: WaMu lured borrowers with a very low interest rate of about 1 percent. But this "teaser" rate was good only for one month. After that, the option ARM could have far higher interest rates than conventional 30-year fixed-rate loans. With each minimum payment, unpaid interest piled up. Once the debt grew too large, WaMu canceled the minimum-payment option. You could suddenly get a new bill for two or three times what you had been paying. Another aspect of the option ARM made it even riskier. Washington Mutual broke the most basic rule of lending, a rule as fundamental as "all lifeguards must be able to swim": It would give you an option ARM even if you couldn't afford to repay it. You only needed enough income to cover the minimum payments. Read parts 1 and 2 of the Seattle Times coverage here and here . And read the indispensable Barry Ritholtz's take here .

  • Must Read: Sheila Bair NYT Op-Ed on Super-Regulator Idea

    In today's New York Times , FDIC Chair Sheila Bair weighs in on the notion that the US needs one "super regulator" to oversee all financial entities. Bair says the Obama Administration is taking the right tack in tightening regulation, but that shifting to one single regulator would not provide the control that proponents of the idea suggest, and, in her eyes, would make the system more susceptible to some of the problems that sparked the current recession. But most importantly, she writes, it would threaten the US banking system in general, and harm small banks in particular: The principal enablers of our current difficulties were institutions that took on enormous risk by exploiting regulatory gaps between banks and the nonbank shadow financial system, and by using unregulated over-the-counter derivative contracts to develop volatile and potentially dangerous products. Consumers continue to face huge gaps in personal financial protections. We also lack a credible method for closing large financial institutions without inflicting severe collateral damage on the economy. The creation of a single regulator for all federal- and state-chartered banks would not address these problems. Rather, it would endanger a thriving, 150-year-old banking system that has separate charters for federal and state banks. Within this system, state-chartered institutions tend to be community-oriented and very close to the small businesses and consumers they serve. They provide loans that support economic growth and job creation, especially in rural areas. Main Street banks also are sensitive to market discipline because they know that they’re not too big to fail and that they’ll be closed if they become insolvent. Read The Case Against a Super-Regulator here .

  • COP August Report Focuses on Troubled Assets

    In its August report, the Congressional Oversight Panel (COP) looks at toxic assets and the risks they pose for US banks and the economy. As the report points out, the Treasury 's Public Private Investment Program (PPIP) was designed to root out both "troubled securities" and "troubled loans." COP members appear to be concerned that the trouble loans portion of the program--administered by the FDIC --was postponed as the FDIC stated "that the banks' recently demonstrated ability to access the capital markets has made a program to deal with troubled whole loans unnecessary at this time." That becomes a problem if the economy worsens, and, the COP report states, small banks are especially at risk: The problem of troubled assets is especially serious for the balance sheets of small banks. Small banks‟ troubled assets are generally whole loans, but Treasury‟s main program for removing troubled assets from banks‟ balance sheets, the PPIP will at present address only troubled mortgage securities and not whole loans. The problem is compounded by the fact that banks smaller than those subjected to stress tests also hold greater concentrations of commercial real estate loans, which pose a potential threat of high defaults. Moreover, small banks have more difficulty accessing the capital markets than larger banks. Despite these difficulties, the adequacy of small banks‟ capital buffers has not been evaluated under the stress tests. The below graph shows how much capital banks would need under two different scenarios for loan loss rates. In each scenario, banks in the $1-100 billion (in assets) range suffer much greater capital shortfalls than the 18 large banks that went through the Treasury's stress tests. Read the full report here . Here is COP chair Elizabeth Warren explaining the report:

  • The White House's New Plan for Financial Regulation

    The White House is set to announce a new financial regulation plan today. A draft of the plan is available here , and as Stephen Labaton writes in the New York Times , if the final edition is in line with this draft, the Fed and the FDIC will soon have expanded regulatory powers : The plan the president will formally announce on Wednesday would give the Federal Reserve greater supervisory authority over large financial institutions whose problems pose potential risks to the economic system. It would separately expand the reach of the Federal Deposit Insurance Corporation to seize and break up troubled financial institutions. And it would create a council of regulators, led by the Treasury secretary, to fill in regulatory gaps. In doing so, the plan seeks to give Washington the tools to police the shadow system of finance that has grown up outside the government’s purview, and to make it easier for regulators to head off problems at large, troubled institutions or take control of them if they fail. Labaton also points out that the plan has many contributors: many "government officials, financial experts, lawmakers, industry executives and lobbyists" weighed in on the proposed plan. The Times's John Harwood asked President Obama yesterday whether he chose to put forward a plan that has a greater chance of political support rather than one that might be more comprehensive: The President also sat down with the Wall Street Journal yesterday to discuss financial regulation, and he again stressed that his desire is for the federal government to have a "light touch" when it comes to regulation. Here is a transcript of that interview .

  • FDIC's Bair: End the 'Too Big to Fail' Presumption

    Results from the Treasury Department's stress tests are coming in, so the banking community is on its toes waiting to hear which banks are safe. And over the weekend the Federal Deposit Insurance Corporation closed four banks. FDIC chair Sheila Bair says there are more bank closings ahead, but not to worry, the FDIC has ample resources to handle the additional failures. So while she is not stressed about the results of the tests, she does want the resolution authority of the FDIC broadened so the agency has authority over an entire banking organization rather than just depositor institutions. Here is what she told The Economic Club of New York in a speech yesterday: The lack of an effective resolution mechanism for large financial organizations is driving many of our policy choices. It has contributed to unprecedented government intervention into private companies. It has fed the "too big to fail" presumption, which has eroded market discipline for those who invest and lend to very large institutions. And this intervention, in turn, has given rise to public cynicism about the system and anger directed at the government and financial market participants. We need a new resolution regime for these large institutions, which does a better job of imposing loss on investors and creditors, instead of leaving it in the hands of government and the laps of the taxpayer. To be sure, creating such a resolution mechanism would be very bold. But recent history –I believe-- has shown that it is a very necessary step. Bair also spoke to CNBC's Trish Reagan yesterday. Reagan asked about the FDIC's capacity to handle the failure of the big banks. Bair said losses on large banks are actually smaller. For example, she tells Reagan that the FDIC had zero losses off of the failure of Washington Mutual (WaMu) last year. And she further explains her contention that it is time to drop the "too big to fail" myth: You can read a transcript of Bair's speech before The Economic Club of NY here .