–Credit Improvement Essential Broadly And For Employment
–Small Business Lending Should Be Balanced And Prudent

By Alyce Andres-Frantz

DETROIT (MNI) – Federal Reserve Chairman Ben Bernanke Thursday was
cautious in his optimism regarding the improvement in credit conditions
and stressed its importance both for the broad economy and for
employment.

Bernanke spoke to approximately 120 people during a question and
answer session where Michigan bankers, private lenders, federal and
local government officials and trade groups leaders gathered to discuss
the financing needs of Michigan’s small businesses.

Bernanke expressed “guarded optimism,” with regard to improvement
in the credit markets. Specifically, he cited loosening in the senior
loan officer survey, stabilization in loss rates and a smattering of
banks returning to profitability.

“We have a long way to go but, I am hopeful to see improved
conditions for credit. The Fed views this as essential both broadly and
as it relates to employment,” Bernanke told the gathering.

Bernanke said while there is a need for all Federal, State and
local agencies to coordinate on small business lending, “The Fed is
committed to balanced approach,” meaning that “banks need to make
prudent loans but at the same time cannot be so restrictive that loans
cannot be made.”

Bernanke noted the Fed has issued instructions as to balanced loans
and training for small business lenders, which will enable “appropriate
prudence.”

While not a Federal Reserve responsibility, “We need to continue to
explore” the Small Business Association as a source of lending for small
businesses, Bernanke said. SBA loans are a “small part of small business
financing,” in part due to a lack of funding but also due to stringent
paperwork and qualification needs. “Improvement can be found there.”

Furthermore, Community Development of Financial Institutions “comes
in all different forms,” Bernanke said. “We have been supportive by
putting TARP money into CDFI to increase lending.”

Bernanke explained CDFI helps mainstream lenders in low and
moderate income community. Also, the Community Reinvestment Act could be
a potential resource for small businesses. While being discussed this is
yet to be applied “but still is a potential source of funding.”

The CDFI is a “hard headed sources of funding,” Bernanke said,
noting his favor for that sector.

Bernanke also explained that the Fed used TALF to create incentives
for loans in the secondary market.

Michael Barr, Assistant Treasury Secretary for Financial
Institutions said there are efforts being made to try to expand set of
resources to small business lending.

Barr noted efforts aimed at bolstering the CDFI field through a
direct fund as well as through capital infusion program for small
businesses having trouble due to credit crisis.

Barr noted President Barack Obama has pushed a new set of
proposal’s through Congress that would provide $30 billion in “seed
funding for small business to provide low cost capital for increased
small business lending,” This is “timely and will make a big
difference.”

With reference to the aforementioned project, banks that
demonstrate the ability to lend will receive more favorable positions.

Barr also noted the “significant incentive to lend,” and added this
program has been paired with a companion $20 billion measure to work
with state programs to fill gap funding for small businesses. These
loans are aimed at $5.0 million to $25 million range.

— email: aandres@marketnews.com

** Market News International Chicago Bureau: (708) 784-1849 **

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