WASHINGTON (MNI) – Following is the first part of the text of
Federal Reserve Chairman Ben Bernanke’s remarks Monday at the Federal
Reserve Meeting Series on “Addressing the Financing Needs of Small
Businesses:”

Let me begin by thanking the staff of the Board’s Division of
Consumer and

Community Affairs, especially the Divisions director Sandra
Braunstein, for the hard work they have done to prepare for today’s
discussion about improving access to credit for sound small businesses.
And thanks also to the many partners who helped us organize today’s
event, particularly the Small Business Administration and the Treasury’s
Community Development Financial Institutions Fund. I am pleased to
welcome all of you to the Federal Reserve Board.

This gathering, ‘Addressing the Financing Needs of Small
Businesses,’ serves as a capstone for a series of more than 40 meetings.
They were conducted across the country, starting in February, by the
Federal Reserve System’s community affairs offices. These meetings
provided forums for small business owners; trade associations; lenders;
bank supervisors; federal, state, and local government officials; and
other stakeholders to exchange ideas about the challenges facing small
businesses, both in the near term and in the longer run.

Some of these meetings were small-group discussions, while others
were larger sessions that addressed specific topics, such as minority
entrepreneurship or guaranteed loan programs. For example, I attended a
meeting in Detroit that combined a general discussion of small business
credit issues with a session focusing on the specific case of suppliers
to the auto industry, many of which are small or medium-sized firms.
Participants in that session highlighted the interconnectedness of the
auto supply chain and the crucial role of stable financing for small
businesses ranging from parts suppliers to independent automobile
dealers in the recovery of the auto industry as a whole. This was, of
course, just one meeting in one city. A meeting in Miami focused on the
needs of Hispanic-owned businesses. Similarly informative discussions
took place in cities such as New York, San Francisco, and Chicago, among
many others, including Omaha, Nebraska; Morgantown, West Virginia;
Toledo, Ohio; and Little Rock, Arkansas.

Our objective in organizing this series was to gather information
that we and others can use to help develop policies that will support
the flow of loans to creditworthy small businesses–for instance, by
identifying and addressing specific credit gaps or impediments to
lending or improving the access of small businesses to critical support
services, including assistance in filing loan applications. This
information serves as the basis for today’s discussion of the next steps
that policymakers and stakeholders can undertake to ensure that small
businesses are able to participate in and contribute to the economic
recovery.

Before we get to the next steps, however, I would like to provide
context by briefly discussing the importance of small businesses to job
creation and the economic recovery, reviewing the actions that the
Federal Reserve has taken to support small business financing, and
offering some observations about what we heard during this small
business meeting series.

Small businesses are central to creating jobs in our economy; they
employ roughly one-half of all Americans and account for about 60
percent of gross job creation (1). Newer small businesses, those less
than two years old, are especially important: Over the past 20 years,
these start-up enterprises accounted for roughly one- quarter of gross
job creation even though they employed less than 10 percent of the
workforce (2).

The formation and growth of small businesses depends critically on
access to credit. Unfortunately, those businesses report that credit
conditions remain very difficult. For example, the net percentage of
survey respondents telling the National Federation of Independent
Business that credit conditions have tightened over the prior three
months has remained extremely elevated by historical standards (3). And
one measure of banks loans to small businesses dropped from more than
$710 billion in the second quarter of 2008 to less than $670 billion in
the first quarter of 2010 (4). An important but difficult-toanswer
question is, How much of this reduction has been driven by weaker demand
for loans from small businesses, how much by a deterioration in the
financial condition of small businesses during the economic downturn,
and how much by restricted credit availability? No doubt all three
factors have played a role (5). Clearly, though, to support the
recovery, we need to find ways to ensure that creditworthy borrowers
have access to needed loans.

Over the past two years, the Federal Reserve and other agencies
have made a concerted effort to stabilize our financial system and our
economy. These efforts, importantly, have included working to facilitate
the flow of credit to viable small businesses. At the Federal Reserve,
we helped bring capital from the securities markets to small businesses
through the Term Asset-Backed Securities Loan Facility–the TALF
program. More than 850,000 small business loans were financed in part by
securities whose issuance was supported by TALF. We have also been
focused on strengthening the nations banks, so that they can resume
normal lending as quickly as possible. For example, the stress tests
that we conducted last year helped restore confidence in the banking
system, allowing banks to raise the capital they need to help offset
credit losses and, ultimately, to provide the basis for new lending.

We have heard the often-expressed concern that bank examiners have
prevented banks from making good loans. We take this issue very
seriously. The Federal Reserve has worked assiduously with the other
banking regulators to develop interagency policy statements on this
issue, aimed at both banks and examiners. Our message is clear:
Consistent with maintaining appropriately prudent standards, lenders
should do all they can to meet the needs of creditworthy borrowers (6).
Doing so is good for the borrower, good for the lender, and good for our
economy. To ensure that this message is being heard and acted upon, we
have conducted extensive training programs for our bank examiners as
well as outreach with bankers, and we will continue to seek feedback
from bankers and borrowers.

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