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Obama Administration Seeks More Bank Lending to Spur Economy

Although the squeeze has eased, many continue to face hurdles to getting loans

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Michael Bowman

U.S. officials say American banks that received unprecedented government assistance to weather a financial meltdown must lend more money to businesses and consumers to help foster a fledgling economic recovery. 

Banks and major financial firms stood at the epicenter of last year's financial crisis and credit crunch that plunged the United States and much of the world into recession.  American banks were among the primary beneficiaries of an $800-billion federal emergency rescue package designed to stop the financial meltdown and prevent economic collapse.

Although the credit squeeze has eased during the past year, many businesses and consumers continue to face hurdles when it comes to getting loans.  Tight credit limits purchases, business operations, and other activities that spur economic expansion, constraining growth at a time when the United States and many other nations are beginning to emerge from a deep and painful recession.

The situation is unacceptable to President Barack Obama's top economic advisor, Larry Summers, who spoke on ABC's This Week program. "The country did incredible things for the banking industry.  Those things had to be done to save the economy.  But no major bank would be intact if that extraordinary support [from the rescue package] had not been provided.  The bankers need to recognize that they have obligations to the country after all that has been done for them.  And President Obama is going to be talking with them," he said.

Mr. Obama is scheduled to meet Monday with heads of the banking and financial services industry, and is expected to urge a boost in lending, particularly to small businesses.

Across America's political spectrum, there appears to be agreement on the need for more credit availability.  Republican Congressman Eric Cantor of Virginia also appeared on "This Week". "No question that there is still a depravation of credit in this country for small businesses," he said.

But Cantor says banks are not the only culprits, and that federal officials are making a bad situation worse. "When the president meets with the bankers, I hope that the discussion centers on what seems to be a real overreaction on the part of some auditors in the regulatory arena that are looking at risk-taking as something that should not be done at all," he said.

It was excessive risk taking that led to a rash of home mortgage defaults that, in turn, helped spark last year's financial meltdown.  The U.S. Congress is currently debating financial reform aimed at preventing a repeat. 

President Obama has accused Republicans of attempting to stifle meaningful reform.  Republicans say the measures under consideration would give the government too much authority over the country's private financial sector and increase the likelihood of even more taxpayer-funded bank bailouts in the future.
 

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