Posted: October 01, 2009
On Management: The banks need to get back in play!
They're supposed to lend money, right?Pat Wiesner
Two men I know well own a business in a small mountain town. They have been there a number of years and have been good for the area, bringing business and pretty good success to themselves. They employ a dozen or so people and are active around the community. The business owns a few buildings.
Three years ago, the owners decided to put up another building. The bank they had been dealing with for four or five years said, "Let us finance it for you. You're a good customer, you have cash in our bank and you can use the money for growth." For reasons of their own the owners decided to fund the building themselves, and the bank said, "OK, you are still a good customer; give us a chance next time."
Three months ago, the same owners said they now want to invest in some growth and asked the same bank to loan against the same building. They have a better balance sheet and income statement than three years ago; they have more cash in that bank than before. The bank said, "No, you are still a good customer, but the regulators will not let us touch a commercial real estate deal; give us a chance when things get better."
Shouldn't banks be helping us get out of this bad economy? Isn't loaning money the number one job of banks in any economy? I thought the bailout for banks was supposed to put them in a position to help the rest of the businesses in the country.
What do we have to do to put the considerable ability of our banking system up as a positive force rather than definitely negative? Can't we get regulators that can tell the difference between a company that is healthy and growing and one that is "toxic" instead of avoiding all commercial deals?
The banks got a bailout after causing a lot of their own problems. Then they became a problem for the rest of business by not making loans.
Right now banks are looking good because:
• They have gotten TARP (Troubled Asset Relief Program) money to clean up their books.
• They are still making money on their credit cards.
• They borrow money from the Fed for nearly nothing and buy 30-year Treasuries at 5 percent. A nice profit using our (taxpayers) money.
• They still have their "toxic" assets that have been written down, and they will provide a profit as time goes on.
So they don't have to lend money to be profitable.
But you and I and our small businesses have to find money to stay in business and to grow. As long as the banks are not in the game for us it will be a long recovery. The money available to us will probably be private. This is harder to get, more expensive, and there is less of it. And since economists say that small business will be responsible for 80 percent of the new jobs in our recovering economy ... jobs will be slower in coming.
Or we can convince the feds to change the rules for the banks. Don't let them borrow fed funds so cheap, make them have a reason to loan money for profit and change out the federal regulators that say no to everything.
There is precedent for this situation. Lessons we should have learned, for example, from the 1980s savings and loan crisis. Small business in the '80s had real problems getting any kind of loan other than to factor receivables. I know - I was there. The bank regulators had the same attitude, and it was a number of years before it got better and led to the really energetic growth of the '90s in the U.S.
Talk to the politicians you can influence. Let's learn something from history.
Pat Wiesner is the retired CEO of WiesnerMedia, publisher of ColoradoBiz. He still leads sales training for the company. E-mail him at email@example.com.