Not only is the flow of credit still declining from the current economic downturn, it could take several years for a full lending sector recover, according to Federal Reserve Gov. Elizabeth Duke.
The resumption of credit growth “has lagged that of all other cycles of the past 40 years with the exception of the 1990–91 recession,” Duke said.
She said that cycle was also accompanied by a banking crisis and followed by significant regulatory change. Congress is now close to approving a final overhaul of financial system oversight.
Adjusting for inflation and measuring the time it took to return to the level of credit at the low point of the cycle in the first quarter of 1991, “it took 3 years for consumer credit to return, 4-1/2 years for home mortgages, 5-1/4 years for non-financial business credit, and a full 8-3/4 years for commercial real estate,” the Fed governor said.
In a speech in Columbus, Ohio sponsored by that state’s Division of Financial Institutions, Duke also said there are concerns that regulatory examiners requiring banks to secure sufficient capital and reduce risk are curtailing loans.
“Despite all we are doing, I still hear the concern that the pendulum has swung and that examiners are being too strict on banks,” Duke said. “…if you believe Federal Reserve examination policies are improperly impeding the flow of credit, we want to know about it. I can’t stress this enough: We want to know if you believe that our supervisory actions are unnecessarily impeding the flow of credit.”
Duke also said the Fed is trying to better understand the difficulties small businesses are having in obtaining credit. The Federal Reserve system is holding more than 40 meetings nationwide to gather information “that will help the Fed and others craft responses to the immediate as well as longer-term needs of small businesses.”
Read Duke’s full speech.
