Advertisement

SKIP ADVERTISEMENT

Fed Chief Urges Banks to Do More for Small Business

DETROIT — Ben S. Bernanke, the Federal Reserve chairman, said Thursday that banks needed to increase lending to small businesses to reduce unemployment and help the economic recovery.

Outstanding loans to small businesses declined to $660 billion in the first quarter of 2010, from almost $700 billion two years ago, Mr. Bernanke said, adding that it was difficult to tell whether the decrease was a result of reduced demand or tightened credit standards. In any case, he said, increasing the flow of capital to small companies was crucial to the recovery.

“While maintaining appropriate prudence, lenders should do all they can to meet the needs of legitimate, creditworthy borrowers,” Mr. Bernanke said at a meeting at the Federal Reserve Bank of Chicago’s branch in Detroit. “Encouraging lending to small businesses that are well positioned to pay is a positive, not a negative, for the safety and soundness of our banking system.”

Healthy small businesses are critical to job growth but have a harder time expanding payrolls than large companies without sufficient access to credit, Mr. Bernanke said. He said only 40 percent of small businesses that tried to borrow in 2009 had all of their needs satisfied.

In response to complaints from small-business owners, the Obama administration has proposed a $30 billion fund that would encourage community banks to increase lending.

Image
“Lenders should do all they can to meet the needs of legitimate, creditworthy borrowers,” Ben S. Bernanke said on Thursday. Credit...Jeff Kowalsky/Bloomberg News

Thursday’s event was one of 40 being sponsored by the Federal Reserve across the country. Findings from the meetings will be discussed at a conference this summer.

Mr. Bernanke did not discuss monetary policy or his outlook on interest rates as he gave brief remarks and responded to several questions from local bankers and business owners. He later listened in on a discussion about the financing needs of automotive suppliers, a sector heavily populated with small and medium-size companies.

Despite four consecutive quarters of economic growth, Mr. Bernanke said unemployment was still one of his “important concerns.” He spoke in a state with a 14 percent jobless rate, the highest in the nation. The national jobless rate was 9.9 percent in April.

Among the reasons that unemployment has not fallen more is that credit standards are in many cases still “so restrictive that good loans are not getting made,” Mr. Bernanke said.

He urged banks to examine loan applicants’ businesses thoroughly and to “avoid mechanical, automatic rejections” based solely on the companies’ industry, location or other negative factors.

“We’ve still got a long way to go, but I’m hopeful that we’ll see improved conditions for credit going forward,” Mr. Bernanke said. “The Federal Reserve views this as being absolutely central to the recovery.”

A version of this article appears in print on  , Section B, Page 5 of the New York edition with the headline: Fed Chief Urges Banks to Do More for Small Business. Order Reprints | Today’s Paper | Subscribe

Advertisement

SKIP ADVERTISEMENT