Pres. Obama Asks Banks To Loan

Obama met earlier this week with top executives of some of the nation’s biggest lenders. The president told the bankers he wants to see more loans for the sake of economic recovery, CNN Money reports. He also urged bank execs to curb compensation and to support financial reform efforts.

Some though are questioning if the administration can make its lending message stick. The reason: The government no longer has much leverage over banks because it so readily accepted repayment of bailout money; $116 billion in all. Meaning, policymakers have little power over bankers who have their own priorities, namely, making money. Banks have been cutting down considerably making new loans, especially to small businesses, which could threaten the economic recovery when stimulus spending slows next year. Consumer credit has dropped in October for the ninth straight month, the Federal Reserve said, while loan balances at commercial banks fell at the fastest rate in 25 years in the third quarter.

Eight of the 10 biggest small business lenders posted smaller loan balances at the end of the third quarter, with loans falling 9.5% over the past year at PNC and 5.8% at American Express. At Citigroup, the New York-based bank and the biggest recipient of federal aid, loans outstanding fell by 15% in the year ended Sept. 30. At JPMorgan Chase, widely applauded for avoiding most of the subprime landmines, loans fell 14% over the same period.

Banks argue that loan demand is weak, as overextended consumers try to rebuild their own balance sheets. However many businesses, even with strong sales, are saying they are having a tough time finding loans.

In response, so far Bank of America has announced its plans to increase lending to small and mid-size businesses by at least $5 billion in 2010 over 2009.