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The public complains that banks are not lending…what is your soundbite?

In a January 13th, 2009 speech in London, Federal Reserve Chairman Ben Bernanke had this to say:

“A continuing barrier to private investment in financial institutions is the large quantity of troubled, hard-to-value assets that remain on institutions’ balance sheets. The presence of these assets significantly increases uncertainty about the underlying value of these institutions and may inhibit both new private investment and new lending.”

I have been saying that at the community bank level, the liquidity challenge is partially caused by deposit levels dropping as troubled business borrowers work through their cash balances. And business borrowers whose loans looked great when made may be weakening, even to the point that they are missing covenants.

A banker in the ‘workout’ team at her bank told me last week in a tax return analysis workshop that the lenders are stalled at her company. She is putting them to work helping her team, which has more work than they can handle!

If a business loan is downgraded, and deposits are lower, loan loss reserves must be increased and availability of funds to lend is impacted.

Is that the way you see it? What is your sound bite when someone you know complains the banks are not lending?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.
  1. Richard

    I always get a chuckle when I read in the news “the banks aren’t lending” or “the banks are tightening their credit standards”. No. The banks are going back to prudent lending and making good decisions. Why would they make loans with 10% equity? Why would you make a loan to a customer that has a dwindling customer base, no cash reserves (because they didn’t need any), and no real idea for change on the business model to succeed in the tough environment? And yes, we’d like to see current financial statements please. You want to borrow our money? Get us the financials.