Banks pull another $1 billion from small business lending

chart_sm_biz_lending.top.gifBy Catherine Clifford, staff reporter


NEW YORK (CNNMoney.com) -- The nation's biggest banks cut their collective small business lending balance by another $1 billion in November, according to a Treasury report released late Friday. The drop marked the seventh straight month of declines.

The 22 banks that got the most help from the Treasury's bailout programs have cut their small business loan balances $12.5 billion since April, when the Treasury began requiring them to file monthly reports on the tally. The banks' total lending has fallen 4.6% in that seven-month period, to $256.8 billion.

As Wall Street megabanks return to health -- and celebrate with lavish bonuses -- President Obama and his administration have been pushing financiers to help spur a Main Street recovery. Small business owners are still reporting difficulty finding banks willing to extend the credit they need to launch, run and grow their ventures.

In December, the President met with a dozen CEOs of the nation's biggest banks to pressure them to reverse their small business lending declines.

Hitting bottom: There are some signs the credit drop may be at or near its nadir.

Five of the 22 banks reported higher small business loan balances in November than they did in April. At others -- such as Wells Fargo (WFC, Fortune 500), by far the biggest small business lender -- the totals have fluctuated month to month.

But 10 of the 22 banks have cut their small business balances every single month since April. That list includes firms such as JPMorgan (JPM, Fortune 500) that are now posting monster profits. In the past seven months, JPMorgan's small business loan balance has dropped by almost $962 million, or 3.7%.

On Friday, JPMorgan Chase reported earnings of $3.3 billion in the last three months of 2009. JP Morgan said its compensation expenses rose 18% during the year to $26.9 billion, much of which will be distributed as bonuses.

JPMorgan was the first major bank up to bat to report financial results. Later this week, Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500), Wells Fargo, Goldman Sachs (GS, Fortune 500) and Morgan Stanley (MS, Fortune 500) are all slated to release their fourth-quarter and full-year numbers.

Bonus backlash: American taxpayers are sour on the idea that the bankers they bailed out are pocketing super-sized end-of-year bonus checks.

The day before JPMorgan reported its earnings, President Obama called on Congress to tax the largest banks in a so-called "financial crisis responsibility fee."

As the backlash gained steam, one representative in Congress proposed a bill that would siphon money from Wall Street bonuses directly to into small business coffers.

Rep. Peter Welch, D-Vt., introduced a bill on Thursday calling for a 50% tax on bonus compensation in excess of $50,000 at banks that received government assistance. All revenue raised from the tax would go directly to the Small Business Administration to fund a new direct lending program. Twenty-three members of the House of Representatives co-signed the bill.

"With double-digit unemployment in a recession they helped cause, there's no justification for seven- or eight-digit banker bonuses," said Rep. Lloyd Doggett, D-Texas, one of the bill's co-sponsors.

SBA-backed lending has begun to rebound from last year's wipeout. The agency's flagship program funded 37% more loans last quarter than it did a year earlier, totaling $3.8 billion.

Chicken or egg? Banks say they are lending less for two key reasons: Small businesses are risky borrowers, and fewer entrepreneurs are looking to borrow and take on more debt in the face of slower sales.

But small business owners tell a different story. They say that tighter lending standards leave too many viable businesses unable to access the credit they need to grow or finance routine operations like buying materials to fulfill customer orders. Lending standards have been growing steadily more restrictive for nearly three years, according to the Federal Reserve's most recent Senior Loan Officer Study, released in October.

Edward Yingling, CEO of the American Bankers Association, says that finding the right balance between caution and investment is critical to spurring economic recovery.

"Bank regulators need to be prudent without being so punitive that they choke off lending in communities across the country," Yingling said last month. "Just as too much risk is undesirable, over-correction will impede economic recovery if banks are prevented from making good loans to creditworthy borrowers." To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Questions & Answers



QHow does a florist sell more in this economy? We changed our business to designing weddings and events only, as the everyday flowers are not selling. We had to throw out too much product at the end of the week -- flowers are perishable! More
Get Answer
- The Flower Lady, Suwanee, Ga.
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.93%4.15%
15 yr fixed3.03%3.12%
5/1 ARM3.27%3.19%
30 yr refi4.01%4.20%
15 yr refi3.09%3.17%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,595.96 196.29 1.20%
Nasdaq 4,414.26 98.19 2.27%
S&P 500 1,939.46 35.45 1.86%
Treasuries 2.21 0.03 1.24%
Data as of 3:17pm ET
Company Price Change % Change
Apple Inc 102.40 2.64 2.65%
Bank of America Corp... 16.57 0.31 1.91%
The Coca-Cola Co 40.50 -2.79 -6.44%
Regions Financial Co... 9.29 0.13 1.42%
Micron Technology In... 31.00 1.31 4.41%
Data as of 3:02pm ET

Sections

After a slow start, tickets prices in San Francisco have moved ahead of those in Kansas City ahead of start of Fall Classic. More

Chinese iCloud users are facing a new wave of attacks -- not from cybercriminals, but from their own government. More

Startups focusing on "ag tech," or agricultural technology, are gaining the attention of farmers and investors More

Foreign workers, lured by false promises of good jobs and benefits in America, soon find themselves enslaved in plain sight as victims of labor trafficking, a report from the Urban Institute finds. Here's how it can happen. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.