NEWS RELEASE
March 2, 2010
ABA Media Contact: Peter Garuccio    
(202) 663-5452
E-mail: pgarucci@aba.com

ABA TESTIFIES ON WAYS TO IMPROVE LENDING TO SMALL BUSINESSES

WASHINGTON – The American Bankers Association testified today on ways to improve the lending environment for small businesses.

Testifying on behalf of ABA before the Senate Banking Committee, Arthur C. Johnson, ABA chairman and chairman and chief executive of United Bank of Michigan in Grand Rapids, said that the economic downturn is being felt by all businesses, including banks, and that eight straight quarters of job losses has increased delinquencies at banks and resulted loan losses and reduced bank capital.

However, Johnson stated that despite the difficult economic climate bankers are working to ensure that the credit needs of their communities are met. 

“Both banks and their regulators are understandably more cautious in today’s environment,” he said.  “But every bank in this country is working hard to ensure that our customers – particularly the small businesses that are our neighbors and the life blood of our communities – get the credit they deserve.”

Johnson further noted that loan demand has fallen dramatically since the recession began, but that there are some positive signs of recovery beginning to emerge.

“We have heard from bankers that small businesses are returning to test the market for loans, even though they may not wish to borrow at the moment. It will take time for this renewed interest to be translated into new loans made, however.”

With regard to commercial real estate lending, Johnson maintained that this sector will continue to pose problems for the banking industry throughout the year.  The collapse of the secondary market for commercial mortgage backed securities and the economic slowdown has caused office and retail vacancies to rise dramatically.  Increased vacancies have caused CRE “take-out” financing to become scarcer and increased the number of stressed loans on banks’ books.

“Regulators will continue to be nervous about the trends in CRE lending and will continue to be critical of banks’ CRE portfolios,” said Johnson.  “But examiners need to understand that not all concentrations are equal, and that setting arbitrary limits on CRE concentrations has the effect of cutting off credit to creditworthy borrowers, exactly at a time when Congress is trying to open up more credit.”

Johnson also expressed appreciation for the Obama administration’s plan to increase capital for small banks who volunteer to use it to increase lending to small businesses.  However, he noted that a key factor to this proposal is ensuring that it avoids any TARP-related stigma, suggesting that community banks would be disinclined to participate if subject to the rules and restrictions of TARP.

Finally, Johnson commended Congress’ work to maintain the integrity of the Small Business Administration’s 7(a) loan program.  The temporary increase in 7(a) loan guarantees of up to 90 percent has been helpful as banks work to extend credit during the recession, Johnson said.

He also noted that the SBA’s expansion of eligibility to small businesses in the 7(a) program, by applying the broader standard used for the 504 program, mean that “an additional 70,000 among the largest of our small businesses will be eligible to participate in the 7(a) program.”

Johnson offered some ideas on how to further improve SBA lending and said that ABA is prepared to work with Congress to find ways to enhance credit availability for small businesses throughout the country.

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For a copy of Johnson’s full testimony click here.

The American Bankers Association brings together banks of all sizes and charters into one association. ABA works to enhance the competitiveness of the nation's banking industry and strengthen America’s economy and communities. Its members – the majority of which are banks with less than $125 million in assets – represent over 95 percent of the industry’s $13 trillion in assets and employ over 2 million men and women.