In typical times of economic recovery, lower interest rates would be fueling the expansion of credit to small businesses, but this is not happening in these times of the Great Recession.
Small business owners still “appear to be facing unusual obstacles in obtaining credit,” Federal Reserve Governor Sarah Bloom Raskin said in a prepared speech Friday before the Maryland Bankers Association.
The most recent Fed survey of senior loan officers on bank lending practices fund that a “low fraction” of domestic banks were easing standards for smaller firms, those with annual sales of less than $50 million.
Moreover, surveys by the National Federation of Independent Business continue to indicate that a large proportion of small businesses find credit more difficult to obtain.
Raskin said the issue of regulatory oversight possibly stifling the access of credit to these businesses is something “that we at the Federal Reserve focus on continually.”
“Just as community banks have a deep understanding of their local communities, it is important that examiners also understand local market conditions to be able to put the bank’s management and credit decisions in the proper context,” Raskin said.
Raskin assured community bankers that the Dodd-Frank financial reform legislation, passed 2010, will result in more regulatory challenges for the largest financial institutions in the coming months. Although, larger community banks – with more than $10 billion in assets – will have to conduct their own “stress tests.”
“While the ability of businesses to access credit is a function of many factors, it is my view that the examination and supervision of the lender should not hinder the ability of creditworthy businesses to access credit,” Raskin said. “To be clear, I do not think this is occurring in any significant way…”
On the more positive said, Raskin said she is encouraged that community banks overall are improving their balance sheets, despite considerable uncertainty in many residential and commercial real estate markets across the country.
While these banks remain “weighed down with nonperforming real estate loans,” there is increasing consolidation in the community banking industry.
“Despite the tough road that many community banks still must navigate, there are promising signs that conditions seem to be stabilizing,” Raskin said. “While profitability remains below long-run historical norms, returns on equity and assets have reached their highest post-crisis levels.”
