Banks Complain Government Stifling Their Efforts To Boost The Economy

February 4th, 2009 by Reed Allmand

According to an article in the Star-Telegram, banking institutions claim that the Federal Reserve is stifling their lending efforts and ability to infuse the economy with more credit.

The article said:

Fearing more bank failures, federal regulators are forcing institutions to hold more money in reserve and are scrutinizing loans. But bank executives complain that the extra oversight thwarts their ability to quickly pump billions of bailout dollars into the ailing economy.

Banks say they are caught in a frustrating Catch-22: How can they make more loans when creditworthy borrowers are scarce, their balance sheets are saddled with bad debt, and regulators are hounding them to horde cash?

Are you kidding me? Basically these banks, many of which faced bankruptcy without government intervention are now claiming that holding money in reserve and scrutinizing loans is thwarting their ability to make loans and help boost the economy. This is the root of the problem; these banks almost went bankrupt because they failed to do what the regulators are now requiring of them. The banks failed to have enough cash reserve and failed to properly scrutinize debtors and this is why they almost went bankrupt and needed a government bail out. They also claim that "creditworthy borrowers" are scarce; but is that really true, or are they simply not making the profit they were use to when they were "rolling in the dough" in their sub-prime loan heyday?

"We don’t believe that prudence and increased lending are mutually exclusive; they go hand in hand," said Andrew Gray, a spokesman for the Federal Deposit Insurance Corp.

Exactly! It’s the lack of prudence that has many banks teetering on the edge of bankruptcy today.