The plan was for President Obama to host the leaders of the nations major national banks at the White House, chastise them about lending, and boost the economy in some way.
Although the outcome of today’s discussion will not really be felt for at least a year, today’s plans surely did not go so well. As an ice storm hit the northeast, and fog rolled in over Washington, the CEO of Goldman Sachs (NYSE: GS) Lloyd Blankfein and Morgan Stanley (NYSE: MS) Chairman and CEO John Mack were forced to dial in via conference call unable to reach Washington in time. Vikram Pandit, CEO of Citigroup (NYSE: C) also did not attend, though not due to the weather – Pandit was busy finalizing the details of the firm’s repayment of TARP funds, and readying the public announcement. The proxy Citi sent in his place failed to arrive at the White House in time as well.
In the hour long meeting, Obama challenged top bankers to explore “every responsible way” to increase lending, and has stated that he feels they are obliged to help after being rescued by taxpayers. Constant chiding may not improve matters though, so perhaps the administration will seek to have a better relationship with businesses in the future.
Despite Obama’s criticism and lecture, the bankers have said that lending is limited by factors beyond their control, which include a weak economy and tighter oversight by government regulators. The slow economy has made many businesses reluctant to expand, and loan applications are down as a result. Further, regulators are telling banks to approach borrowers more skeptically, and tighten up lending practices to prevent defaults. As banks are required to keep larger capital cushions to protect against loan losses in the future, there is less money available to lend in the present.
Ken Lewis, the embattled CEO of Bank of America (NYSE: BAC) set to step down at the end of this month pledged that his bank would lend $5 billion more in 2010 than it did in 2009 to small- and mid-sized businesses. Similarly, JPMorgan (NYSE: JPM) said last month that it plans to boost such lending by $4 billion.
Lending is critical to the country, and the rate at which the funds flow through the spigot will have a major impact on economic growth. Economists have long held that the velocity of money flowing through the system is a critical component to a normal functioning economy. While today’s effort was designed to open the spigot full blast, cautious regulators and careful banking may prove otherwise.
