Economists: Banks OK, but recession looms

Associated Press

WASHINGTON — The nation’s banks are strong and stand ready to make the loans needed as businesses struggle to regain their footing in the wake of the terrorist attacks, an industry official said Monday.

Bank economists, meanwhile, added to the chorus of experts who believe a recession is unavoidable.

"The attack has pushed us into recession. If we’re not there, we’ll be there shortly," Gregory Miller, chief economist at Atlanta-based SunTrust Banks Inc., said in a telephone conference call with news reporters.

Miller, who heads a committee of bank economists advising the American Bankers Association, said their consensus view is that growth in Gross Domestic Product — the country’s total output of goods and services — likely will be less than zero in both the third and fourth quarters of the year. That, of course, is a negative change from their forecast before the Sept. 11 assaults against the World Trade Center towers and the Pentagon.

Last week, against a backdrop of massive airline layoffs, empty hotels and restaurants and Wall Street’s biggest weekly point decline ever, many economists said the economic damage from the attacks has virtually guaranteed a recession this year.

Two closely watched forecasting groups — Blue Chip Economic Indicators and the National Association for Business Economics — released surveys finding that an overwhelming majority of economists believe a recession is inevitable.

Still, some of the bank economists and others anticipate a recovery next year as early as the January-March period, assuming that the Federal Reserve cuts interest rates at least once before then, the government digs into the federal budget surplus to finance the country’s response to terrorism, and an economic stimulus package — containing tax cuts and costing billions — becomes law.

In the meantime, U.S. banks are strong and "ready to make the loans and work with their customers if necessary to help get us back on track," James Chessen, chief economist of the bankers’ association, said during the conference call.

He said banks and thrifts have an estimated $739 billion in capital and reserves against possible loan losses. That means around $7 trillion is potentially available for lending.

Chessen said that in the past, the banking industry has helped take the economy out of recession.

There have been no panicked runs on bank deposits following the attacks, and indications are that deposits have actually increased since Sept. 11, though the causes aren’t known and could be unrelated to the attacks, SunTrust’s Miller said. Already this year, many consumers had been shifting money into bank accounts as the stock market sagged and their investment portfolios were battered.