Many smaller banks don’t have sound loans on their books. They are under constant pressure to clean up their financials and add to basic capital.
Politicians in their area are putting pressure on the bank examiners
to allow these banks with questionable standing to make loans which
ordinarily should not be made.
Unfortunately, banks
are not making sufficient loans to small business even if they have
the ability to do so, The truth is, they make more money these days
by borrowing cheaply from the Federal Reserve and investing in
government bonds.
This unhealthy
environment is perfect for meddling politicians in
Washington whose influence is being made in the wrong place and manner.
Solution? Supervise banks
gingerly but independently of politics. Permit banks to
make riskier small business loans and restrict their tendency to
borrow cheaply and invest in government bonds.
It
is also time to raise the cost of Fed money to banks, so the latter
do what they are in business for. (See the Earl J. Weinreb
NewsHole® commentaries.)
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