WASHINGTON — Regulators must do all they can to help banks make loans to creditworthy borrowers, especially small businesses, a development that’s critical to strengthening the economic recovery, Federal Reserve Chairman Ben Bernanke said Thursday.
It’s a delicate dance for the Fed and other banking regulators. As regulators encourage banks to make loans to sound borrowers, they are also working to make sure banks get back on firmer footing after suffering through the worst financial and economic crises since the 1930s.
“Our message is a simple one: institutions should strive to meet the needs of creditworthy borrowers, and the supervisory agencies should do all they can to help, not hinder, those efforts,” Bernanke told a conference on banking in Chicago.
“We are also supporting efforts to work with troubled borrowers to bring them back into good standing,” he added.
Getting credit to flow more normally again to both people and businesses is an important ingredient to helping the fledging economic recovery gain momentum. Improvements have been made but problems still remain.
Ordinary Americans — trying to pare their debt and rebuild their finances — have shown a weak appetite to take out new loans.
However, many lawmakers on Capitol Hill have complained about small businesses wanting to take out loans but have trouble getting them. And, that has crimped their ability to expand operations and hire. Small businesses usually help drive job creation during recoveries, but credit clogs have hurt hiring.
“Small business lending conditions are much tighter than they’ve been at any time in recent memory, certainly much tighter than before the crisis,” Bernanke said, fielding questions after his speech.
“What we need to do is find a balance that makes economic sense where the banks are making good loans that they expect to be repaid, but are not so conservative and so restrictive that they turn away borrowers with whom they may have long-term relationships, who they can reasonably expect to repay and to be creditworthy,” Bernanke explained.
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