S. HRG. 111–531 

SMALL BUSINESS LENDING 

FIELD HEARING 

CONGRESSIONAL OVERSIGHT PANEL 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

HEARING HELD IN PHOENIX, ARIZONA, APRIL 27, 2010 

Printed for the use of the Congressional Oversight Panel 

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57–213 2010

S. HRG. 111–531 

SMALL BUSINESS LENDING 

FIELD HEARING 

CONGRESSIONAL OVERSIGHT PANEL 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

HEARING HELD IN PHOENIX, ARIZONA, APRIL 27, 2010 

Printed for the use of the Congressional Oversight Panel 

( 

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/administration/index.html 


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(II) 

CONGRESSIONAL OVERSIGHT PANEL 

PANEL MEMBERS

ELIZABETH WARREN, Chair 

PAUL ATKINS

J. MARK MCWATTERS

RICHARD H. NEIMAN

DAMON SILVERS


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(III) 

C O N T E N T S 

Page 

Opening Statement of Elizabeth Warren, Chair, Congressional Oversight 

Panel .............................................................................................................. 1 

Statement of Mr. J. Mark MCWATTERS, Member, Congressional Oversight 

Panel .............................................................................................................. 5 

Statement of Mr. Damon Silvers, Member, Congressional Oversight 

Panel .............................................................................................................. 10 

Statement of Mr. Richard Neiman, Member, Congressional Oversight 

Panel .............................................................................................................. 14 

Statement of Robert Blaney, Arizona District Director, U.S. Small Business Administration ...................................................................................... 18 

Statement of Stan Ivie, Regional Director, San Francisco, Federal Deposit 

Insurance Corporation .................................................................................. 23 

Statement of Cindy Anderson, CEO, Great Biz Plans .................................. 52 

Statement of Candace Wiest, President and CEO, West Valley National 

Bank ............................................................................................................... 59 

Statement of Paul Smiley, President and CEO, Sonoran Technology ......... 64 

Statement of James H. Lundy, President and CEO, Alliance Bank of 

Arizona ........................................................................................................... 68 

Statement of Mary Darling, CEO, Darling Environmental and Surveying 75 

Statement of Lynne B. Herndon, Phoenix City President, BBVA Compass ................................................................................................................ 80 


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(1) 

FIELD HEARING ON SMALL BUSINESS 

LENDING 

TUESDAY, APRIL 27, 2010 

U.S. CONGRESS, 

CONGRESSIONAL OVERSIGHT PANEL, 

Phoenix, AZ. 

The Panel met, pursuant to notice, at 10:05 a.m., at the University of Arizona, Phoenix, Arizona, Elizabeth Warren, Chair of the 

Panel, presiding. 

Present: Professor Elizabeth Warren [presiding], Mr. Damon Silvers, Mr. J. Mark McWatters, and Mr. Richard Neiman. 

OPENING STATEMENT OF ELIZABETH WARREN, CHAIR, 

CONGRESSIONAL OVERSIGHT PANEL 

Chair WARREN. I now call to order this meeting of the Congressional Oversight Panel for the Troubled Asset Relief Program. 

Good morning. My name is Elizabeth Warren. I am the Chair of 

the Congressional Oversight Panel. I would like to begin this morning by extending our sincere thanks to the City of Phoenix, the 

University of Arizona, Senator John McCain, Senator John Kyl, 

and Congressman Ed Pastor for hosting us and for helping to plan 

today’s hearing. 

These hearings take a lot of people and a lot of moving parts and 

we’re very grateful for the help of the congressional delegation. 

Congress established our panel in October of 2008 to oversee the expenditure of the $700 billion Troubled Asset Relief Program, 

commonly called TARP. We issue monthly oversight reports that 

analyze and evaluate the Treasury’s administration of this program 

in stabilizing our economy. 

In the course of our work, we travel from time to time to areas 

of the country that have been especially hard hit by the financial 

crisis. This morning we’re pleased to be in Phoenix to learn more 

about the credit crunch or the reduction of availability of credit for 

small businesses. 

Oversight of this topic is a crucial role for our panel. The Secretary of the Treasury recently designated small business credit as 

one of the primary focuses of the TARP and he pledged TARP 

funds for additional efforts to facilitate small business lending. 

This is a difficult moment for most American businesses, large 

and small. Companies of all sizes remain constrained by the recession, hampered by the unwillingness of banks to lend and weakened by the reluctance of customers to buy, but as our economic 

cycle turns towards recovery, there is a very real fear that, while 


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big businesses might be able to gain credit through Wall Street or 

the debt markets, small businesses will be left behind. 

For Arizona this is not an acceptable outcome. Over 97 percent 

of the state’s employers have fewer than 500 employees. Nearly 

half of the state’s workers are employed by small businesses. A recovery that leaves behind Arizona’s small businesses can hardly be 

termed a recovery at all. 

Before the crisis, entrepreneurs who needed money to finance 

their business had many options. They could reach out to a local 

or a national bank and ask for a loan. They could charge expenses 

to a business credit card. They could contract with a non-bank 

lender to receive upfront payment on future income. They could 

take out an equity line of credit against their business property or 

their homes. 

Today most of those choices have disappeared and for most businesses the only credit option remaining is a small business loan. 

But for even this, the pathway is restricted. Most banks have suffered severe losses and many have cut back on lending. 

To make matters worse, the hardest-hit banks tend to be the 

smaller ones, the same institutions that disproportionately serve 

small businesses. The result could be a vicious cycle. Small businesses could find that because they cannot access credit, they cannot meet demand for their services. Their bottom line could suffer, 

further undermining the economy which in turn could further damage credit access. Breaking this cycle will be an important step toward economic recovery. 

[The prepared statement of Ms. Warren follows:] 


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Chair WARREN. We are grateful today for all of our witnesses and 

I’ll introduce them as we go along. And with that, I’m going to 

pause and ask for an opening statement from McWatters. 

Mr. McWatters. 

STATEMENT OF J. MARK McWATTERS, MEMBER, 

CONGRESSIONAL OVERSIGHT PANEL 

Mr. MCWATTERS. Thank you, Professor Warren. I very much appreciate the attendance of the distinguished witnesses, and I look 

forward to hearing their views. 

The problems presented by today’s commercial credit and small 

business lending markets would be easier to address if they were 

solely based upon the mere under-supply of commercial and small 

business credit in certain well-defined regions of the country. 

Unfortunately, the commercial credit and small business lending 

markets must also assimilate a remarkable drop in demand from 

borrowers who have suffered reversals in their business operations 

and prospects over the past two years. 

In my view, there has been a material decrease in demand for 

commercial and small business credit and many potential borrowers have withdrawn from the market due to, among other reasons, their desire to deleverage, the introduction of enhanced underwriting standards by lenders and their regulators, the diminishing opportunities for prudent business expansion, the crippling 

effects of the recession, and the increasing tax and regulatory burden facing small and large businesses. 

Conversely, the Administration has focused on the undersupply 

of commercial and small business credit and has, not surprisingly, 

proposed a government-sponsored program to remedy the problem. 

If enacted as proposed, the Small Business Lending Fund will permit a subset of commercial and small business lenders to obtain 

capital from the Federal Government at very favorable rates, provided the lenders agree to use the proceeds to extend credit to 

small business borrowers. 

In addition to serving as arguably the first step in a program to 

nationalize small business lending, I am troubled that providing financial institutions with capital at below market rates will lead to 

a prudent lending activity in the inflation of a series of government-sanctioned and subsidized asset bubbles. 

If the Government convinces or pressures financial institutions to 

accept cheap credit, based on the condition that the recipients offlend the proceeds, then I suspect the Government will accomplish 

just that. Yet isn’t this what we have just recently experienced in 

the sub-prime credit bubble? Too much money chasing transactions 

of diminishing credit quality. 

The Administration’s proposal appears to share much of the business model with those adopted by Fannie Mae and Freddie Mac. 

Treasury should have learned from Fannie and Freddie that the 

combination of below market credit, together with a single-minded 

mandate to lend, regardless of credible demand, serves as a perfect 

recipe for the creation of asset bubbles. 

In addition, the Administration’s program seems at cross purposes with the recent actions of federal banking regulators who 

have become increasingly cautious, perhaps even overly cautious, 


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regarding extensions of credit and renewals by regulated financial 

institutions. 

It is indeed ironic for the Administration to propose a program 

of cheap credit-driven lending while at the same time federal and 

state banking regulators are attempting to reign in the excesses 

that inevitably followed from the Government’s last experiment 

with cheap credit. 

Instead of requiring the taxpayers to subsidize another round of 

imprudent short-term credit expansion, commercial and small business lenders, in consultation with the regulators, where appropriate, should adopt long-term business models and strategies that 

incorporate objective and transparent due diligence standards that 

permit well-run borrowers to receive credit on reasonable terms 

and lenders to earn an appropriate risk-adjusted rate of return. 

Regrettably, some potential borrowers will fail the heightened 

underwriting standards and will not receive the requested extensions of credit. This should not necessarily serve as a sign of angst 

but should indicate that the credit markets have moved away from 

an anything goes mentality where borrowers frequently overextended their leverage and financial institutions survived through 

the clever interpretation of accounting rules and the implicit guarantee of their obligations by the American taxpayers. 

Any suggested solution to the challenges facing commercial credit 

and small business lenders and borrowers that focuses only on the 

undersupply of credit to the exclusion of the economic difficulties 

facing prospective borrowers appears unlikely to succeed. Until 

small and large businesses regain the confidence to hire new employees and expand their business operations, it is doubtful that 

the demand for properly-underwritten commercial and small business credit will sustain a meaningful recovery. 

As long as business persons are faced with the multiple challenges of rising taxes and increasing regulatory burdens, it is unlikely that they will enthusiastically assume the entrepreneurial 

risk necessary for protracted economic expansion and a recovery of 

the commercial credit and small lending markets. 

Thank you for joining us today. I look forward to our discussion. 

[The prepared statement of Mr. McWatters follows:] 


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Chair WARREN. Thank you, Mr. McWatters. 

Mr. Silvers. 

STATEMENT OF DAMON SILVERS, MEMBER, CONGRESSIONAL 

OVERSIGHT PANEL 

Mr. SILVERS. Thank you, Chair Warren. Good morning. 

This hearing is an effort by our panel to learn more about the 

circumstances of small- and medium-sized businesses seeking to 

obtain credit and, in particular, to learn whether TARP, the federal 

bank bailout, has been successful in its purpose of ensuring the 

flow of credit to Main Street. 

Like my fellow panelists, I want to express my appreciation to 

our staff, to the University of Arizona for this facility, to the state’s 

congressional delegation and the Mayor of Phoenix for their assistance with this hearing. 

Arizona has been particularly hard hit by the financial and economic crisis that began in 2007. Unemployment in this state is at 

9.6 percent officially. There’s testimony from one of the witnesses 

that the real rate in the Phoenix area may be something like 15 

percent and housing prices statewide have fallen by 36 percent. 

Consequently, it is appropriate that our panel come here to learn 

about the state of credit provision to small- and medium-sized businesses. 

Now, in coming here, we did not know that today Arizona would 

be the focus of a profound debate about our character as a nation, 

a debate with roots in the pain caused by the economic crisis, but 

since this debate is underway and we are here, I wish to say that 

for me America is a place where the police do not ask for your identity papers as you go about your business, and I hope we can soon 

say the same about Arizona. 

We have banks in substantial part that transform our savings 

into credit for business. When then-Treasury Secretary Paulson 

went to Congress to create TARP, he spoke of the dire threat to the 

banking system as a whole with serious consequences for smalland medium-sized businesses throughout our country that depend 

on bank credit to finance inventory and capital goods, to purchase 

real estate, and the many other ways to keep operating and creating jobs. 

What Secretary Paulson did not say, as far as I know, was that 

as a result of the concentration in the U.S. banking sector, smalland medium-sized businesses nationwide have depended increasingly on credit from large banks. The biggest banks, those with 

over a 100 billion in assets, provided only 15 percent of small business loans in 1999 while in 2008 those banks provided 37 percent. 

Unfortunately, the largest 22 banks receiving TARP funds, none 

of which were allowed to fail in the financial crisis, have actually 

reduced business lending nationwide during the period from April 

to November 2009, a period when large banks were supposed to be 

recovering and recording very high profits. Meanwhile in Arizona, 

we have seen an epidemic of weakness among locally-based banks 

with 84 percent of the state’s banks losing money in 2009 and six 

banks closed by the FDIC, an epidemic driven largely by residential and commercial real estate loan weakness. 


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Economic recovery and job creation require that our banking sector do its job by providing credit on reasonable terms to creditworthy borrowers. I hope we can learn today about the roles played 

by locally-based and national banks in credit provision in Arizona 

and get a sense of the relative importance of the weakness of borrowers versus the weakness of lenders in the contraction in bank 

lending to small business and in understanding the decline of lending to small- and medium-sized businesses as a result of the economic crisis. 

Finally, I’ve long suspected that despite the TARP, our banks, 

both large and small, continue to be under-capitalized. In this environment and so long as banks are not sufficiently recapitalized or 

restructured, there is reason to believe that bank capital structures 

will not work to channel credit to small business, much as the 

TARP seems not to have done so during 2009. 

I would be interested in today’s witnesses’ thoughts on how to 

channel credit to small business borrowers prudently in this environment and, in particular, whether TARP monies should be channeled directly to small- and medium-sized business lending, much 

as TARP money and Federal Reserve money has been used to directly support Wall Street-oriented credit markets, such as the 

asset-backed securities markets through the TALF and PPIP Programs. 

Thank you, and I look forward to hearing from our witnesses. 

[The prepared statement of Mr. Silvers follows:] 


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Chair WARREN. Thank you, Mr. Silvers. 

Superintendent Neiman. 

STATEMENT OF RICHARD NEIMAN, MEMBER, 

CONGRESSIONAL OVERSIGHT PANEL 

Mr. NEIMAN. Thank you. Good morning. I’m also very pleased to 

be here in Phoenix and to continue the Panel’s commitment to 

issues around small business lending. 

I especially want to thank the witnesses—both the small businesses and other consumers and borrowers—who are here, as well 

as the banks and regulatory officials. 

I’d also like to thank the state’s newly-appointed banking superintendent, Lauren Kingry, who is also in attendance here, and I 

know representing the Governor. So I very much appreciate your 

participation here today. 

The spiraling financial crisis has touched every corner of the 

credit markets, including products like small business lending, 

which were seemingly remote from the sub-prime mortgages that 

were at the heart of the crisis. 

Small businesses are engines of the economy and of job creation. 

The financial crisis and ensuing recession, however, have created 

a catch-22 that makes it difficult to restart the credit markets. 

There is a lack of confidence on both the supply and the demand 

side which reinforces this economic rut. 

Small businesses are understandably hesitant to take on more 

debt and expand at a time when their own customer base may be 

less than stable and banks are also understandably reluctant to 

take on more risk at a time when small businesses may have 

strained income. 

Community banks are frequent sources for small business credit, 

and, in this stage of the financial crisis, smaller banks are coming 

under increasing stress. We have seen growing numbers of smaller 

banks fail recently and anticipate that this trend will continue. 

These small bank failures, which could be increasingly driven by 

commercial real estate defaults, create holes in our communities. 

Where there was once a flourishing center for responsible hometown lending, there can be a vacuum. This means less credit may 

be available for small businesses as well as for consumer lending. 

So I see a clear connection between righting the ship for real estate loans and small business lending. Commercial real estate defaults may constrain the lending capacity of the smaller banks 

which provide credit to many small businesses and since many 

small businesses use their homes as business collateral, the 

cratering of the residential real estate market has reduced these 

borrowers’ ability to qualify for loans. 

To break the stalemate, we will require old-fashioned underwriting to identify the good deals that are still waiting to be made. 

It may also require banks to think not only creatively but collectively. 

For example, we have a unique small business program in New 

York. It’s centered on the New York Business Development Corporation which was chartered in the 1950s during a recessionary 

period, and to my knowledge we are one of the few such programs 

in the country. 


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This consortium is an entity which functions similar to a lending 

consortium. Member banks provide funding to the corporation 

which in turn makes loans to small businesses, loans that banks 

would typically decline. 

The New York Business Development Corporation has had a 

very successful history with these loans and it’s a real force for economic development in my state and I intend to explore the means 

of using TARP funds for similar small business lending consortiums during my question period. 

It is my hope and intent that today’s hearing will assess the 

magnitude of the problem in small business lending and, most importantly, explore potential market-based and public policy solutions. 

I look forward to your testimony and to your innovative ideas. 

Thank you. 

[The prepared statement of Mr. Neiman follows:] 


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Chair WARREN. Thank you, Superintendent Neiman. So now we 

will hear from Robert J. Blaney, the Arizona District Director of 

the Small Business Administration, and from Stan Ivie, San Francisco Regional Director of the Federal Deposit Insurance Corporation. 

I would like to give each of you five minutes for an opening statement. Your entire written remarks will be put in the record, 

though. So don’t feel constrained about that. 

Mr. Blaney, could we start with you? 

STATEMENT OF ROBERT BLANEY, ARIZONA DISTRICT 

DIRECTOR, U.S. SMALL BUSINESS ADMINISTRATION 

Mr. BLANEY. Thank you. Thank you, Chair Warren and Members 

Neiman, Silvers, and McWatters. 

My name is Robert Blaney. I am the District Director for the 

Small Business Administration or the SBA. I am honored to be testifying before you today on behalf of the SBA concerning current 

credit conditions for small businesses, especially those in Arizona. 

One of the main missions of the SBA is to provide small business 

owners with access to much-needed capital. We do this primarily 

by providing a partial government guarantee on loans given by 

banks and other lending partners. This guarantee helps provide access to capital for creditworthy small businesses that would otherwise be unable to get loans. 

Our programs help to support many small businesses and we understand the difficulties small businesses face with access to credit 

in today’s economic climate. To address the financial crisis, Congress passed the Recovery Act which President Obama signed into 

law on February 17th, 2009. This legislation allowed the SBA to 

raise guarantees on eligible 7(a) loans to 90 percent and reduce or 

eliminate fees in our 7(a) and 504 loan programs. 

As a result, while conventional lending to small businesses continues to lag, SBA lending nationwide has increased dramatically 

since the weeks before the Recovery Act was passed. Here in Arizona, SBA lending has increased by nearly 60 percent since the 

passage of the Act. Nationwide, we turned about $530 million in 

taxpayer funding into support for more than $25 billion in loans to 

small business owners which is a great bang for the taxpayers’ 

buck. This includes nearly $530 million in SBA-supported loans to 

Arizona small businesses. 

Despite these accomplishments, I know that times are still tough 

for small business owners. Given those ongoing difficulties, the 

SBA has worked with the President to create a jobs plan that targets the lending gaps that still exist. There are four components to 

this small business jobs agenda. 

First, to address the issue of banks that still have trouble taking 

risk, we’ve asked for a temporary extension of the increased 90 percent guarantee and reduced fees. 

Second, many small businesses, franchises, manufacturers, exporters, and others need bigger SBA loans to create jobs. Therefore, 

we want to permanently increase our top loan limits from $2 million to $5 million for 7(a) and $4 million to $5.5 million for our 504 

loan program. 


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Third, for businesses that can’t find access to working capital, we need to temporarily raise the SBA express loan limit from $350,000 

to $1 million. These loans will help businesses restock shelves and 

fill orders coming in. 

Fourth, we know that many small businesses have conventional 

owner-occupied commercial real estate mortgages that will need to 

be refinanced soon. As real estate values have declined, many 

banks will find that these businesses no longer qualify for conventional loans, regardless of the strength of the businesses. 

As a result, even small businesses that are performing well and 

making their payments on time can have a hard time refinancing 

these loans and may face foreclosure. 

Chair WARREN. Mr. Blaney, can I stop you there? That’s five 

minutes. Thank you very much. We’ve all, I think, read your written testimony, and we’ll make sure it’s included in the record. 

[The prepared statement of Mr. Blaney follows:] 


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Chair WARREN. Mr. Ivie. 

STATEMENT OF STAN IVIE, REGIONAL DIRECTOR, SAN 

FRANCISCO FEDERAL DEPOSIT INSURANCE CORPORATION 

Mr. IVIE. Thank you, Chair Warren and members of the Congressional Oversight Panel. 

I’m Stan Ivie, Regional Director for the FDIC’s San Francisco Region which covers 11 Western states, including Arizona. 

I appreciate the opportunity to testify today on behalf of the 

FDIC on the state of bank lending and access to credit for small 

businesses. 

The FDIC is the federal insurer of deposits at all banks and 

thrifts and serves as the primary federal supervisor for more than 

5,000 state-chartered banks. We work closely with state regulatory 

authorities in performing our supervisory duties and understand 

the challenges faced by financial institutions and their customers 

during these difficult economic times. 

Bankers and examiners know that responsible lending is good 

business and benefits everyone. We also know that continued recovery of our economy will depend heavily on creditworthy borrowers having access to credit at our nation’s insured banks. 

The ailing economy has stressed the balance sheets of both banks 

and small businesses, creating a difficult credit environment at 

both banks and small businesses. The rapid deterioration has resulted in declines in both the demand for and supply of credit. 

Nationwide, expenses for troubled loans continue to weigh heavily on our banks. More than half of the banks in the West are not 

currently profitable, as costs associated with charged-off loans and 

provisions to increase reserves for loan and lease losses continue to 

negatively impact earnings. 

Non-current loans more than 90 days past due or on non-accrual 

represented 5.37 percent of all bank loans at year-end 2009, a 26- 

year high. The rate of increase in the volume of non-current loans, 

however, has slowed for three consecutive quarters and we expect 

that trend to continue. 

Arizona’s banks and small businesses have been particularly 

hard hit by the recent economic downturn. 2009 was a particularly 

difficult year for Arizona banks as the state’s institutions charged 

off loans and reserves for future loan losses at record high levels, 

resulting in the second lowest median pre-tax return on assets, 

ROA, in the nation. 

Small businesses have also been severely impacted by the economic downturn. While surveys clearly reflect that bank loans have 

become more difficult to obtain, their own deteriorating business 

conditions appear to represent an even bigger problem as many cite 

poor sales as their biggest business problem. 

Bank examiners at the FDIC recognize the critical role that 

banks and small businesses play in our economy. Our examiners 

work out of 85 local duty stations and communities located across 

the country, including one right here in Phoenix. They are experienced, professional, and knowledgeable about their banks and local 

market conditions. 

FDIC examiners are not directly involved in a bank’s credit decisions. The FDIC provides banks with considerable flexibility in 


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dealing with their customers and managing loan portfolios. We do 

not instruct banks to curtail prudently-managed lending activities, 

restrict lines of credit to strong borrowers or deny renewal requests 

solely because of weakened collateral value. We do not require new 

appraisals for a healthy loan that is performing according to its 

original terms. 

We leave the business of lending to those who know it best, the 

community bankers who provide credit every day to small businesses and consumers throughout America and here in Arizona. 

To ensure consistency in our approach, FDIC employees at headquarters, in the region and in the field are engaged in a continuous 

and ongoing dialogue about credit conditions and our supervisory 

approach. We also communicate regularly with other federal and 

state regulators and hold roundtable discussions with local bankers 

to gain their perspective. 

We emphasize that our examiners should take a balanced approach and that they should encourage banks to originate and 

renew properly-underwritten real estate, commercial, and consumer loans and to work with borrowers facing difficulties to restructure their obligations. 

In determining what is a performing loan, FDIC examiners focus 

on borrower cash flow as a primary source of repayment. Collateral 

support serves as a secondary source of repayment. When reviewing loans, we look at collateral documentation but focus on the borrower’s overall financial strength, including guarantor support and 

business cash flow projections. A borrower’s willingness and ability 

to keep payments current, especially during stressed economic 

times, is a primary factor in evaluating loans. 

The FDIC has issued a series of statements to clarify our supervisory processes and to encourage financial institutions to make 

prudent loans. Most recently, on February 12th, 2010, regulators 

jointly issued the Interagency Statement on Meeting the Credit 

Needs of Creditworthy Small Business Borrowers to encourage prudent lending and emphasize that examiners will apply a balanced 

approach in evaluating small business loans. 

In conclusion, while many challenges remain before bankers, 

small businesses, consumers, and regulators, the FDIC is confident 

that the banking industry as a whole is moving in the right direction toward more sound lending practices, stronger balance sheets, 

and a greater capacity to serve the credit needs of small businesses 

and their communities. 

Thank you. 

[The prepared statement of Mr. Ivie follows:] 


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Chair WARREN. Okay. Thank you, Mr. Ivie. So we’re going to do 

some questions. We’ll try to hold ourselves to five minutes, at least 

in this first round, and I’ll start first with Mr. Blaney, if I could. 

SBA loans are what portion of total small business lending? 

What portion of small business lending comes through SBA? 

Mr. BLANEY. I don’t know the answer to that question. 

Chair WARREN. It’s a very small fraction, isn’t it? 

Mr. BLANEY. It’s a smaller fraction, but I do not know the answer 

to that question. 

Chair WARREN. Okay. Sir, well, let me ask it a different way 

then. Knowing it’s a small fraction, when the Government says it’s 

going to put programs in to do more SBA lending, do we have any 

sense of how much leverage that’s going to create; that is, how 

much change it’s going to make in the availability of credit for 

small businesses? 

Mr. BLANEY. Well, we have seen an increase in lending—— 

Chair WARREN. Can you hold the mic just a little bit closer to 

you? 

Mr. BLANEY. We have seen a general increase in lending this 

year as a result of the Recovery Act. Last year we only did 960 

loans in this state and this year year-to-date we’ve done 684. So 

we’ve seen that there’s been a general increase. 

Chair WARREN. Do you have any idea—that’s 684 out of how 

many loans? 

Mr. BLANEY. I don’t know. I don’t know what commercial—— 

Chair WARREN. What I’m trying to figure out is not whether you 

did 680 loans but whether that’s a drop in the bucket or that half 

fills the bucket because we’re really trying to figure out the role the 

SBA plays here. 

Mr. BLANEY. Yes. Unfortunately, I don’t know what commercial 

lenders are doing. I only know what they’re doing with SBA. 

Chair WARREN. Okay. Let me ask a different question then of the 

SBA. Would the SBA be more effective if it became a direct lender 

again instead of working only through financial institutions? 

Mr. BLANEY. Well, we’ve been asked that question and many people are asked why SBA doesn’t make loans directly, and direct 

lending would require hiring a new workforce and significantly expanding our reach. It would require us to set up or stand up a massive bureaucracy and SBA would not be able to make its first direct 

loan for approximately a year or more. 

Chair WARREN. Okay. Well, I get the timing part. Are you telling 

me that the banks now have a massive bureaucracy to do this? 

Mr. BLANEY. Well, no, ma’am. 

Chair WARREN. Then why would it take you a massive bureaucracy to do? 

Mr. BLANEY. Well, we have to have more people to do it. 

Chair WARREN. Well, why would it be a massive bureaucracy 

when you do it but the banks are doing it now without a massive 

bureaucracy? 

Mr. BLANEY. I’m afraid that would be a policy question and I’m 

a civil servant, ma’am. I run this office here. 

Chair WARREN. But you just gave me that answer. 


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Mr. BLANEY. Yeah. And we’d have to have a whole operations 

section to do it and that would be several hundred people for credit 

purposes. 

Chair WARREN. So for you to do what the banks do would require 

a massive bureaucracy but it doesn’t require the banks—— 

Mr. BLANEY. Well, massive bureaucracy is a bad term. It would 

take a lot of people to run a center for lending. 

Chair WARREN. Okay. Maybe I should ask some questions of the 

FDIC while we’ve got you here. 

So are banks contracting credit, Mr. Ivie? What are you seeing 

from your perspective? 

Mr. IVIE. I think banks, and community banks in particular, 

want to lend to borrowers. The trouble is finding creditworthy borrowers. The demand is—— 

Chair WARREN. Well, which is—— 

Mr. IVIE [continuing]. Not there. 

Chair WARREN. That’s what I’m really trying to ask—supply and 

demand. Are you seeing a demand contraction or are you seeing a 

supply contraction? I realize you may be seeing some of both, but 

do you have some sense of which one seems to be driving things 

here? 

Mr. IVIE. Yes. Some of both. I think our community banks clearly 

want to lend, but the demand is not there from the creditworthy 

borrowers. It appears that healthy borrowers who could borrow are 

not interested in borrowing at this time. I think it’s a confidence 

issue and once we see the economy start to recover and employment start to recover, then I think the businesses will be more willing to borrow. 

Chair WARREN. Okay. So you’ve just given me two demand side 

answers; that is, those who are asking for credit don’t deserve it 

and those who deserve it aren’t asking for it. So that’s why you 

think lending has contracted, small business lending? 

Mr. IVIE. And also banks—it’s true that many banks have financial difficulties right now with their credit quality and they need 

to reserve their capital for losses and future losses, which result in 

less capital and liquidity to lend to borrowers. 

Chair WARREN. So another problem that we’re seeing is because 

the banks themselves are in financial trouble, presumably because 

of their real estate loans or their commercial real estate loans, and 

don’t want to lend. They want to hang on to their capital. 

Do you have any sense of what they’re doing with their excess 

capital right now? 

Mr. IVIE. Yes. Again, I think banks want to lend, if they have 

the available capital to be able to lend. If they don’t find acceptable 

loan demand, Fed funds are an option for some of the banks at this 

time. 

Chair WARREN. I’m sorry. I’m not quite understanding. So are 

you saying the banks don’t have any excess capital right now? 

Mr. IVIE. Some banks do, some banks don’t. Banks that are in 

trouble do not have excess capital at this time. 

Chair WARREN. Okay. I got that part. And the banks that do 

have excess capital, what are they doing with it? 


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Mr. IVIE. I think they are striving to lend to borrowers. When 

they do not have sufficient borrower demand or creditworthy borrowers—— 

Chair WARREN. You think they’re out there trying? 

Mr. IVIE. I do think they’re out there trying. 

Chair WARREN. Okay. My time is up. Mr. McWatters, the mic is 

yours. 

Mr. MCWATTERS. Thank you. I was looking over the written testimony of James Lundy. He’s the CEO of Alliance Bank of Arizona, 

and on page three of his testimony he says that ‘‘increased capital 

requirements for the banking industry may make sense, particularly for banks with higher risk profiles. However, increased capital 

requirements should be phased in, perhaps over a two-to-four-year 

period, allowing the industry to deal with capital issues more strategically.’’ So phasing-in capital requirements. 

On the next page, Mr. Lundy says, ‘‘Regulators are stretched 

very thin but they seem to have too little flexibility in their examination procedures and process which exacerbates the resource 

shortage.’’ So too little flexibility. 

Third, Mr. Lundy says, ‘‘Recently, compliance exams have an increasingly hard edge to them, to which the community banker becomes frustrated,’’ and the like. 

So this is from a real live banker, not from a Member or panelist. 

Do you have any comments with respect to phasing in capital requirements, too little flexibility regarding examination procedures, 

and this so-called hard edge? 

Mr. IVIE. Well, I agree that many of our banks are having difficulty and they need to deal with their own problems. Prompt corrective capital ratios of five, six, and ten percent, those are for a 

well-managed bank in a stable environment. Capital needs to be 

commensurate with the risk in the bank’s portfolio and that is requiring higher levels of capital when there are risky loans on the 

books. 

In terms of flexibility, we strive to be very balanced and flexible 

in dealing with our banks. We issue guidance on how we would 

evaluate loans to try to clarify our processes to the industry, which 

we hope will make them more comfortable in making loans. 

As far as compliance exams, we take consumer protection very 

seriously at the FDIC. We view the FDIC seal as a Good Housekeeping Seal of Approval and if a bank is going to have the FDIC 

seal on its front door, we want customers to know that they’re 

going to be treated fairly by that institution. 

So we do enforce our consumer protection laws equally with our 

safety and soundness. 

Mr. MCWATTERS. Okay. Thank you. Mr. Blaney, any comments 

to that? 

Mr. BLANEY. No, sir. 

Mr. MCWATTERS. Okay. Lynne Herndon, President of Compass 

Bank, Phoenix, she writes in her opening statement that ‘‘many 

banks in Phoenix are beyond the current capital guidelines for commercial real estate and so much so that their ability to make business loans is impacted.’’ Okay. So too much CRE depresses regular 

non-CRE loans. 


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‘‘Many banks are shrinking their overall balance sheets in order 

to come closer to the guidance.’’ Okay. 

‘‘Unfortunately, in many cases this means asking creditworthy 

borrowers to leave as these are the loans most easily placed with 

another bank.’’ That seems like the last thing you would want to 

do is ask a good customer to leave. 

She concludes by saying, ‘‘All these requirements serve to 

dampen lending in a time when we need to be expanding.’’ 

Any observations on her concerns? 

Mr. IVIE. Commercial real estate concentrations are a significant 

problem, especially in the West. Many banks are looking to shrink 

their balance sheets to preserve their capital. Their capital is being 

eroded from charged-off loans and provisions for future loan losses. 

The FDIC does not instruct a bank to get rid of its creditworthy 

borrowers. 

I think it’s more that if they don’t have the capital, they’re trying 

to improve their capital ratios by shrinking their balance sheet and 

that may be why they are not lending or running off some of their 

CRE loans. 

Mr. MCWATTERS. Okay. Thank you. I’ll stop there. 

Chair WARREN. Good. Thank you. Mr. Silvers. 

Mr. SILVERS. Thank you. Mr. Ivie, in your written testimony, 

which is very helpful, very detailed, there is a chart on page four 

of loan growth in the last quarter of last year. It shows that, all 

in all, insured institutions’ loan growth shrank by $128 billion. 

$116 billion of that shrinkage came from institutions over a $100 

billion, and we actually saw growth in lending among, I guess we 

might call them, medium-sized financial institutions. 

Can you speak to this in the context of what I think most people 

believe was a rapidly-improving economy, whether sustainable or 

not is another question, but an improving economy at the last 

quarter of 2009 as shown by the basic GDP numbers and the like? 

Can you explain what is going on here and particularly talk to not 

the question of whether or not there was a deterioration in general 

business conditions during 2008 and 2009, which clearly there was, 

and clearly there was a decrease in demand as a result for lending, 

but the question of, in light of this data, how serious a problem we 

have as the economy begins to improve a little bit and whether the 

supply of credit is going to act as a brake on that improvement? 

Mr. IVIE. Yes, that’s definitely a concern. I think what the chart 

reflects is that you have community banks who are locally based 

and that may be why they can continue to make loans. They’re locally based. They work and live in the communities and they’re 

better positioned to lend locally. So I think that’s why you’ll see the 

community banks lending and perhaps why the larger banks that 

are the money center banks not lending. 

Mr. SILVERS. So your view would be—do I read you right to say 

that community banks essentially are taking a more qualitative approach? They have a more kind of three-dimensional knowledge of 

their borrowers and the large banks maybe are doing more quantitative model-driven lending? Am I reading you right? 

Mr. IVIE. I would say that’s accurate. Community banks do much 

more relationship lending in their communities. 


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Mr. SILVERS. Now, one of the witnesses, one of the bank witnesses, and I apologize, I don’t recall which, points out that, at 

least in this area, 70 percent of the commercial bank market is four 

large national institutions. 

In light of what you’re saying and pointing out, is that type of 

concentration an obstacle here to adequate credit provision on the 

upside, given what we just exchanged? 

Mr. IVIE. Again, I think community bankers are best positioned 

to lend to small businesses because of their relationship and their 

knowledge of the local communities. So that would seem to make 

sense. 

Mr. SILVERS. If that’s so, how serious a problem is the looming 

commercial real estate problems in community banks which our 

panel has reported on and which you allude to, I believe, in your 

testimony? 

Mr. IVIE. Right. It’s a serious problem for our community banks. 

They have large concentrations. Commercial real estate was a 

niche that community banks fulfilled because they had that local 

relationship and local knowledge of the markets. 

We are seeing some improvement and stabilization in terms of 

prices. Many bankers report to me that they are able to sell their 

properties for what they had written them down to at this point, 

so that’s a good sign, but it will take some time to work through 

that concentration. 

Mr. SILVERS. So you don’t see continued pressure on the commercial real estate asset side on community banks? You think it’s bottomed out? 

Mr. IVIE. I don’t know if it’s bottomed out. The decline, rate of 

decline has slowed. 

Mr. SILVERS. The rate of decline is slowing. 

Mr. IVIE. Right. The rate of decline is slowing. We are seeing 

some stabilization in terms of prices. The banks have written it 

down to an amount that they can now sell and recover their funds. 

It’s still a serious problem going forward. 

Mr. SILVERS. Mr. Blaney—thank you, Mr. Ivie. Mr. Blaney, I understand from your response to our Chair’s questions that you’re 

really focused on the work of the SBA. 

I’m curious, though, in the course of your dealing with the borrowers that come to you and work through you, what perceptions 

or what sense have you gotten from that and interactions with the 

world of non-SBA lending because—let me just be specific. 

One could interpret what you say is the serious growth in SBA 

lending as, in part, reflecting the inability of your clients to get 

conventional loans because they’re not available or have become 

less available. 

Mr. BLANEY. Again, I think it also depends on the bank. There 

are some banks that we deal with who only do SBA lending. They 

don’t do any form of conventional lending. They do SBA lending. 

They sell their loans in the secondary market and that funds other 

additional loans. 

People come to us usually when they’re having difficulties with 

their loan and we have worked throughout this state to—we’ve run 

a number of programs for people to teach them to ask for 

deferments and that sort of thing so that they have some idea of 


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what to say when they go back to the bank when they’re having 

difficulty. 

As far as folks coming to us, we have people every day that are 

looking for money. We run workshops where we talk about that for 

people so that they can go to a bank and apply for an SBA loan 

and again, you know, it depends on the bank. Some banks do both 

conventional and SBA. Some banks here in Arizona just do SBA 

lending, period. 

Mr. SILVERS. Thank you. My time has expired. 

Chair WARREN. Thank you. Superintendent Neiman. 

Mr. NEIMAN. I first want to thank Mr. Ivie especially, for traveling from San Francisco to participate in this hearing. 

The public should also know, as well as the panel members, that 

we did try to get some of the large lenders, including a large San 

Francisco lender, Wells Fargo, to participate here with us to get 

the perspective of one of the largest lenders. They declined to participate, in fact even in providing an executive from the Arizona operations, and we were greatly disappointed. 

What we have been hearing from the borrowers and small businesses is a common thread—a common theme—that banks are 

tightening and, in many cases, in my opinion, correctly tightening 

underwriting standards are not distinguishing between sound creditworthy borrowers and weak risky borrowers, and, in fact, one of 

the bankers identified as painting with a broad brush. Hence, if 

that is true, banks are missing good lending opportunities. 

You know, based on your experiences within the institutions, is 

this true? 

Mr. IVIE. Again, I think banks are in the business of making 

loans. They want to make loans. We recently issued our Interagency Statement on Meeting the Credit Needs of Small Business 

Borrowers. We put that out particularly to try to ensure that our 

supervisory policies are not indirectly curtailing lending at our financial institutions and to let our banks know we expect them to 

monitor concentrations, but they should not automatically refuse 

credit and they will not be subject to criticism if they do a comprehensive analysis and restructure their loans. 

Mr. NEIMAN. And one way to get banks to identify good business 

opportunities is to work with borrowers, whether in an educational 

program or in restructuring the loans or telling them what do they 

have to do in order to become a creditworthy borrower. 

Are you seeing those levels of interaction between banks? I’m 

also interested: Is there a distinction between the small banks, the 

regional banks, and the large banks in their commitment to working with borrowers to assure that they are—so that you’re not losing the opportunities for those creditworthy borrowers? 

Mr. IVIE. Right. We’ve issued numerous statements and guidance 

to the industry encouraging our banks to work with their borrowers to restructure their loans. That’s critically important in this 

economic period. 

In fact, we’ve actually just reached a partnership with the Small 

Business Administration where we are going to provide financial 

education to small businesses to help them understand the financial system. 


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What I can speak to is that I know community banks, the smaller banks, do want to lend and they are working with their customers. 

Mr. NEIMAN. So, you’re seeing a greater reluctance from the larger banks in working with customers, or, if you can put it another 

way, you’re seeing a greater effort on the part of community banks? 

Mr. IVIE. Yes. I’m seeing a strong effort on the part of community 

banks. 

Mr. NEIMAN. Okay. Do you see a need—you heard me in my 

opening statement talk about our New York Business Development 

Corporation that facilitated through a consortium of both equity 

and financing from member banks expanded opportunities to lend 

to small businesses where the investing banks would maybe not 

have taken on those loans and very likely would have declined 

those loans, but because of the singular focus of this Business Development Corporation to have the underwriting standards, to be 

able to work with borrowers, it’s proven to be a successful model. 

Is that something that you have seen in other regions or would 

endorse as an approach worth exploring? 

Mr. IVIE. I have not seen that approach in other regions. It 

sounds like it’s definitely an approach worth exploring. I think the 

more avenues that are available to creditworthy borrowers the better we will all be. 

Mr. NEIMAN. Great. Mr. Blaney, you know, one of the challenges 

and in fact frustrations is in the collection of data and you got that 

very clear from Chair Warren’s first question. 

Are there any recommendations that you have that could help 

the country get a better sense of the data around small business 

lending, particularly the effectiveness of SBA programs? 

Mr. BLANEY. Sir, that’s really a policy question, and, at my level, 

I’m the district director here in Arizona. I do not make policy. I implement policy from Washington and so, respectfully, I don’t have 

an answer for you on that. 

Mr. NEIMAN. Thank you. Are there any policy, regulatory—I’ll 

ask Mr. Ivie—any regulatory or policy responses that we could be 

addressing, either by regulators or others, to address this, the issue 

of having banks, both large and small, ensure that they’re not 

missing business opportunities? 

Mr. IVIE. I think we’ve structurally put that in place with our 

various announcements and statements to the industry on what 

our approach is going to be, trying to make them comfortable and 

less cautious, so they will make prudent loans to creditworthy borrowers. 

Mr. NEIMAN. And are they understood from your perspective? 

Mr. IVIE. That’s an ongoing process. I frequently hold banker 

roundtables to discuss that with them. We hold conference calls 

with the industry and internally, as well, to explain to our own 

staff what our approach is going forward. So it’s a continuing communication effort that we will continue to do. 

Mr. NEIMAN. Thank you. My time has expired. 

Chair WARREN. Thank you. I just want to follow up on this question about data. 

We asked, I asked earlier about your impression about the supply and demand difference. Some banks are looking, you say, for 


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loans, others are not. Are there any hard data that help us sort any 

of this out? You know, the banks say, ‘‘gee, I just don’t see any good 

customers’’. The people who are looking for loans are saying, ‘‘I just 

don’t see any banks that want to lend’’, and unless there’s some 

giant disconnect occurring in America, one side must have a better 

handle on the truth than the other here. 

Are there any data to support one claim over the other? 

Mr. IVIE. We do track loan volumes and loan volumes are declining. 

Chair WARREN. Okay. So we know for a fact credit is shrinking. 

Mr. IVIE. That’s correct. 

Chair WARREN. Okay. 

Mr. IVIE. That’s right. Underwriting standards are being tightened. Banks are shrinking to try to preserve their capital ratios. 

So there is a lower volume of lending at this time. 

Chair WARREN. Right. So it sounds like banks are making less 

money available. 

Mr. IVIE. Well, I think they have less money to make available 

because they have their own credit quality problems. They have 

to—they’ve charged off loans. They have reserves for future loan 

losses. That’s reduced the amount of money they have to lend to 

borrowers. That’s for troubled banks. 

Chair WARREN. Okay. So you’d recommend we take a look at 

charge-offs as a way to understand this? 

Mr. IVIE. I think the way to understand it is to look at the—— 

Chair WARREN. I just mean in shrinking the money available? 

This is the supply side. I’m still trying to focus on the question. 

Mr. IVIE. That’s right. 

Chair WARREN. Okay. Let me ask you another one along this 

same line. We hear the complaint from banks, and sometimes from 

their customers because it’s been related by banks, that supervisory standards have gotten too tough and I think Mr. McWatters 

alluded to this in one piece of the testimony. 

I would expect people to complain that their regulators are too 

tough. The question is again do we have any data on this? Is there 

any way to assess this independently? 

Mr. IVIE. I don’t know if you’re going to get actual data on that. 

The problem is banks that have credit quality problems, they need 

to cleanse their balance sheets and have an accurate recording of 

their assets on their balance sheet. That’s the first step to recovery. 

Once the problem is defined and investors can identify the extent 

of the problem, then new money can come into these institutions 

to lend to borrowers. 

Chair WARREN. Okay, one last question. There’s a new program 

coming out, the Small Business Lending Fund, and the argument 

is that banks will participate in this who didn’t want to take TARP 

money because of the stigma associated with TARP money. 

Do you believe banks will want to participate in this? It’s going 

to be a different kind of program. Do you anticipate something different here? 

Mr. IVIE. Yes. I hope banks will want to participate. I know they 

do want to lend. There obviously is a perception issue with TARP 

and kind of a bailout backlash. 

Chair WARREN. And do you think this fixes that problem? 


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Mr. IVIE. It’s a step in the right direction. 

Chair WARREN. And how is it a step in the right direction? 

Mr. IVIE. Well, it’s a tool. 

Chair WARREN. By giving it a name? 

Mr. IVIE. It’s a tool that should help. It’s funds that will be available for banks to access to lend to their customers. 

Chair WARREN. But this is presumably for banks that wouldn’t 

take the funds through another program. 

Mr. IVIE. Well, I think you will see banks that will apply for the 

funds. 

Chair WARREN. That will want the funds? 

Mr. IVIE. Yes. 

Chair WARREN. Okay. Alright. That’s it for me. Mr. Silvers, do 

you have any questions? Mr. McWatters? We’re good? Mr. Silvers. 

Mr. SILVERS. Like Elizabeth, I have one or two questions. 

Mr. Ivie, I think that the data in your testimony would suggest 

that the Capital Purchase Program under TARP may have been 

less than fully successful in reviving business lending, particularly 

at the small end. 

But what lessons can we take away from this experience for the 

program Treasury’s proposing that would require congressional action or some other steps? What can we learn? 

Mr. IVIE. I think one difference is a year ago when TARP was 

being offered, we were still in a declining economic environment. 

Losses were continuing to accumulate. No one knew where that 

bottom was. 

Today, things are starting to stabilize and I think banks will be 

more willing to access that money and actually lend that money because they’re not trending downwards as fast as in the past when 

new capital was eaten up by continuing losses. 

Mr. SILVERS. Okay. So you’re suggesting that a dollar today 

might not be quite so swallowed up by losses as a dollar a year ago 

or a dollar a year and a half ago? 

Mr. IVIE. I would agree with that. Banks have taken really heavy 

provisions and losses in 2009. Our data shows that the third quarter of ’09 was probably the peak period for provisions and writedowns. 

Mr. SILVERS. And this is—I’m not taking my questions out of 

order, but you said a moment ago that there are continuing issues, 

in response to a question from our Chair, you said a moment ago 

there are continuing issues with write-downs. 

In your view, and I would ask you to answer this question with 

respect to community banks and with respect to very large institutions separately, are the balance sheets clean? Do we have institutions that have gotten themselves to the point where that transparency, that realism exists on those balance sheets, such that 

lending can move forward? 

Mr. IVIE. Yes. We’re a lot closer than we were a year ago. We 

monitor institutions closely, not just through examinations but 

through quarterly call reports. There’s been large amounts of provisions that have been taken and I think the balance sheets are 

much more accurate than in the past. 


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As a result of that, we are starting to see capital come in to some 

of our institutions. We’ve had several of our institutions recently 

have success in accessing the capital markets and raising capital. 

Mr. SILVERS. Finally, this hearing in large part is focused on 

small business lending. Obviously we have a representative from 

the SBA here, Mr. Blaney, but something that concerns me deeply 

is that we have essentially very small enterprises on the one hand 

and then we have public corporations that can access public credit 

markets and then there is a lot of business in between that does 

a lot of the work of our economy, employs a lot of our citizens, 

whose financing needs are larger than the SBA limits but who 

can’t access the public credit markets efficiently. 

For that type of business, the 200 to 400 employee kind of business, what kind of credit environment does the FDIC see there? 

Mr. IVIE. It’s a difficult credit environment everywhere. I think 

there are banks, regional banks and community banks, that can 

service those customers. They can do participations with other institutions to be able to increase their lending limit to be able to 

serve those types of customers. 

Mr. SILVERS. We’ve taken a lot of your time and so my time has, 

I think, probably come to an end, but I would very much appreciate 

if the FDIC and its staff could work with our staff on data that describes the lending environment for that segment of our economy. 

Mr. IVIE. Okay. I’m sure we will follow up on that. 

Chair WARREN. Thank you. Thank you, Mr. Ivie. Superintendent 

Neiman. 

Mr. NEIMAN. Just a few questions. I do encourage you to review 

the testimony of the banks as well as the borrowers and, to the extent that your time permits you, to stay and hear not only their 

testimony but our questions and answers. I think we would appreciate that, as well. 

Two of the points that were raised were of particular interest to 

me as a state regulator. One of the bankers, in talking about the 

CRE guidance that is out there in the world dealing with and applying it to banks, was a recommendation that banks could benefit, 

and the public could benefit, if there was a differentiation in the 

vintage year for calculating CRE concentrations, that certainly 

there are distinctions between loans made in 2004 and CRE made 

in 2006. 

So I don’t know if you have given any thought to that or would 

like to comment on that particular recommendation. 

Mr. IVIE. Yes. 2005 and 2006 were difficult vintage years. We encourage our examiners not to take a blanket approach, to take a 

case by case approach. There are good loans and bad loans made 

during all those periods and we encourage them to look at the specific credit and make that decision and not take a blanket approach. We have flexibility to assign capital ratios based on our assessment of that individual bank’s portfolio. 

Mr. NEIMAN. So similar concentrations at two different banks 

may not be treated the same, based on the quality and vintage of 

those commercial credits? 

Mr. IVIE. That’s correct. Concentration is one factor. How the 

loans were underwritten when they were initiated is probably the 

bigger factor. 


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Mr. NEIMAN. Another banker raised an issue around to the extent that loan loss reserves should be treated in capital ratios and 

should be given more weight. 

Do you have a particular view? I know it’s been reported that 

Chairwoman Bair has a different view on the increases in the ability to take into consideration loan loss reserves in capital ratios 

from the Comptroller. 

Mr. IVIE. Well, my view would be the same as Chairwoman 

Bair’s. 

Mr. NEIMAN. Thank you. 

Chair WARREN. Thank you. With that, we thank this panel very 

much. Thank you, Mr. Ivie. Thank you, Mr. Blaney. The witnesses 

are excused. 

I’m going to call the other witnesses to the stand, please, and I’ll 

introduce them as we do. 

Candace Wiest, President and CEO of West Valley National 

Bank; Lynne Herndon, Phoenix City President for BBVA Compass 

Bank; James Lundy, President and CEO of Alliance Bank of Arizona; Mary Darling, CEO of Darling Environmental and Surveying; 

Cindy Anderson, CEO of Great Biz Plans; and Paul Smiley, President of Sonoran Technology and Professional Services. 

We thank all of you for your willingness to share your perspectives today and we look forward to hearing from you. As before, I’m 

going to ask you to keep your initial remarks to five minutes, even 

less if you possibly can, so that we will have time for some questions afterwards. How about if we start down here with Ms. Anderson? 

STATEMENT OF CINDY ANDERSON, CEO AND PRESIDENT, 

GREAT BIZ PLANS 

Ms. ANDERSON. Certainly. Good morning, Ms. Warren and members of the Congressional Oversight Panel. 

My name is Cindy Anderson. I own Anderson Business Development, Inc., also doing business as Great Biz Plans, based in Scottsdale, Arizona. We provide customized business planning and consulting services—can you guys hear me? Okay. Good. 

Chair WARREN. Why don’t you pull the microphone up just a little bit closer so everyone else can? 

Ms. ANDERSON. Glad to do that. We provide customized business 

planning and consulting services to business owners looking to 

start and grow their business. Our clients are almost always in 

need of funding from lenders or investors and many are franchises 

and start-ups. 

Like many entrepreneurs, I personally funded the start-up and 

expansion of my business. In 2005 to 2006, I tapped into a 

$150,000 of the equity in my home to launch the Great Biz Plans 

brand. We’ve served nearly 200 clients in the United States, Canada, Mexico, Germany, and my newest international client is in 

Kuwait. 

My business has changed pretty dramatically since I started consulting in 1998 and I’ve been greatly affected by the financial crisis 

and credit contraction. September 2007 was our largest revenue 

month ever, yet based on the negative trends in my business, that 

same month was also when I laid off employees and radically cut 


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expenses, including my payroll. My business was at the start of 

what would become a steady two-year decline. My clients and prospects no longer were able to capitalize or collateralize loans to start 

and fund their businesses. My business was in the ICU. Running 

and growing a small business isn’t for the faint of heart. 

Also, the credit and financial crisis had an extreme impact on my 

clients. For the past 10 years, business owners have used their 

home equity and other personal assets to fund and secure their 

working capital needs. I particularly appreciated Superintendent 

Neiman’s comments. Those personal loan funds and assets just 

aren’t there anymore. 

My clients have a hard time coming up with the capital or the 

collateral to make themselves attractive enough to lenders. Most of 

the business owners I’m referring to are genuinely solid. They look 

great on paper. Yet somehow they just don’t fit that elusive lending 

criteria. They’re almost never given an honest helpful explanation 

as to why their loan application was rejected again, just that it 

wasn’t approved. 

It’s fair to generalize that banks just aren’t lending anymore and 

when they are, it’s with a select few that are in fortunate circumstances and fit the banks’ changing and silent lending criteria. 

It’s not that loan demand is down, the problem is that supply has 

dried up. Most small business owners are just not able to access 

capital. The rules of the game have changed, admittedly for the 

lenders and for the borrowers. The problem is that most often these 

rules, ratios, and criteria and even the terminology are not made 

plain to the prospective borrowers. 

The lending market needs innovative ways to support business 

owners and start-ups to fuel economic growth. Lending needs to be 

there for them with plainspoken criteria and enough funds to support smaller, non-real estate-linked small business loans in a way 

that works for both the lenders and the borrowers. 

I have three concerns about the current situation I’d like to share 

with you now. 

First, the bottom line appears to us that lenders have more 

money now than they’ve ever had with record profits. Among many 

other policies, their lending criteria have changed, as they should 

have, yet they have been given or were forced to take funds to stabilize the financial situation. Instead of moving those funds and 

profits through to the marketplace in the form of new loans which 

would stimulate economic recovery, they’ve held on to those funds 

and the resulting profits without releasing them back into the very 

markets they were chartered and funded to serve. 

Second, well-intentioned bankers are still networking in the community, meeting with prospects, marketing their banks’ services, 

though few are personally making claims that lending is up. 

They’re out there looking for that top 10 in their local market for 

owners and niche industries. Most businesses don’t fit lenders’ new 

and often closely-held criteria. These mixed messages are very confusing to borrowers. 

Third, lenders are still largely not loaning money to the small 

businesses, to the start-ups, to those that create the majority of 

jobs in this state. Lending may be up from its dead standstill but 

it’s still stalled. 


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In closing, there is good news. My business is up remarkably from last year. March of 2009, my revenue was $438 in my business. March of 2010 was my company’s second highest revenue 

month ever. Demand is definitely bouncing back in response to improving economic conditions and entrepreneurs are on the move 

bootstrapping and self-funding their growth. 

Thank you. 

[The prepared statement of Ms. Anderson follows:] 


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Chair WARREN. Thank you, Ms. Anderson. Ms. Wiest. 

STATEMENT OF CANDACE WIEST, PRESIDENT AND CEO, WEST 

VALLEY NATIONAL BANK 

Ms. WIEST. Good morning, Madam Chair and members of the 

Panel. 

I am the President of West Valley National Bank. We are a $39 

million community bank centered in the West Valley which is one 

of the hardest-hit areas in the Valley. We opened at the start of 

the financial storm on December 21, 2006, and we were founded to 

serve small business, the medical and dental professionals throughout Maricopa County. 

Our main focus, though, continues to be in the West Valley 

where approximately 95 percent of the businesses, according to our 

opening research, were small businesses. 

In 2007 we realized that there was about to be an economic hailstorm and we went out and doubled our capital, believing that we 

would be in a much stronger position to provide opportunities for 

small businesses or also for bank acquisitions. We did utilize some 

of those funds to go into Buckeye. We felt a little like the firemen 

at 9–1–1 going into the hardest hit area out there where the banks 

were pulling back. 

In 2008 we sought SBA approval so that we could continue to 

start funding more small business loans and in 2009 we did fund 

three SBA 504 loans and recently, in fact just a week ago, closed 

our first 7(a) loan. So we’re very excited about that. 

The government increase in SBA funds, combined with the 90 

percent guarantee in waiver of fees, has been extremely helpful, 

both from the bank and the client standpoint. It provides us a 

much lower risk loan which you’ve heard a lot of testimony about 

the condition of community banks and even though we are not in 

that bucket, certainly it has been important to us to be able to 

originate quality loans just because of the amount of scrutiny. 

The question of market demand, I think, is complex. The locallyowned community banks control less than 4 percent of the market 

share of deposits. Unlike states like Georgia and Florida, who have 

several hundred community banks, I think right now there are 25 

in this state and that is it. So that is also, I think, an issue out 

there for small businesses. 

We could expand. We have 39 percent Tier 1 capital and 50 percent leveraged capital. We have looked at a lot of borrowers. I 

think last year we looked at somewhere around $250 million in 

new credit and found that many of the borrowers were in a startup situation which is, I think, considered highly risky for a small 

community bank like ours. 

We’ve also found a number of people who didn’t cash flow when 

you look at debt service coverage ability of one to one and we certainly found that collateral was impacted and that’s why the SBA 

loan status was critical for us and I do want to say that I think 

they have been fabulous. Our last loan turned around in less than 

one week because we do not have preferred lender status there. 

The real issue is, as you’ve heard over and over, the real estate 

loans. We chose not to leverage up in 2007 because we saw this decline coming. So we didn’t do as much real estate because for every 


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one percent the cap rates go up, the value drops by 15 percent. So 

you could almost bet that if cap rates went up even 2 percent you’d 

be looking at a problem loan. So we did not do that. 

Unfortunately, we are not profitable and I think the only thing 

that is going to cure that for us—it’s not from loan losses, it’s really 

strictly from the ability to source quality borrowers. 

The regulatory environment has had an impact on us. It’s not 

from the standpoint of affecting our lending decisions but just from 

a pure oversight compared to the manpower. We have 11 employees. Right now the OCC is in our bank. When, in 2008, they finished a full scope of safety and soundness, they were in our bank 

for a month, two weeks with the training team, there were 10 of 

them, 11 of us. In 2009 they had been in our bank at year-end 

2008, they were in, we had a BSA exam, a fair lending exam, and 

a CRA exam. 

[The prepared statement of Ms. Wiest follows:] 


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Chair WARREN. Thank you, Ms. Wiest. And we will have all of 

your written statement in the record, as we will for everyone. 

Mr. Smiley. 

STATEMENT OF PAUL SMILEY, PRESIDENT AND CEO, 

SONORAN TECHNOLOGY AND PROFESSIONAL SERVICES 

Mr. SMILEY. Ms. Warren, members of the Panel, thanks for having me this morning. 

My name is Paul Smiley. I’m a retired Air Force lieutenant colonel and combat veteran. I am also the President and CEO of 

Sonoran Technology and Professional Services. 

Sonoran Technology and Professional Services is an SBA-certified 

8(a) and service-disabled, veteran-owned small business that provides professional services in the federal market arena. We specialize in a variety of services that include but are not limited to 

military training operations, leadership training, information technology, help desk services, call center support, facility management, logistics support, accounting, and office administration. 

The strength of our company lies in our ability to deliver lowrisk, best value, and transformational services to the Government. 

Moreover, Sonoran has a unique ability to recruit and retain highly-qualified and experienced personnel and professionals for the 

Government who have security clearances. 

Since 2007, Sonoran has grown by 700 percent and expanded our 

operations to six states and maintained a 96 percent retention rate. 

Although not publicly acknowledged until December 2008 that the 

United States was in the midst of the worst recession since 1932, 

Sonoran Technology has not only managed to survive but we have 

grown by 700 percent since winning our first government contract 

in July 2007. 

Like a majority of other small businesses, the major obstacle we 

faced then and, to a certain degree, today is access to working capital to support new employee payroll. It is my opinion that, due to 

the financial crisis, increased regulatory oversight, and, to a large 

degree, banks painting small businesses with the small broad 

brush, those of us with proven business track records of success 

and whose financials are strong still have a difficult time obtaining 

capital to grow our businesses and put Americans back to work. 

This broad brush approach fails to recognize small businesses 

like Sonoran Technology, which operate in a market that has 

monthly receivables that are guaranteed and consistent and guaranteed by the Federal Government. Moreover, as an SBA-certified 

8(a) small business, program certification requirements and orders 

are far more stringent than any bank will require for a small business. 

In fact, if more banks understood federal contracting and how it 

works, I believe you would see an upsurge in small business lending and companies like Sonoran Technology would have not been 

rejected by five banks. 

There is, however, a good news story here today. In July 2008 

I was able to prove to Ms. Candace Wiest, the CEO of West Valley 

National Bank, that Sonoran Technology was creditworthy and 

very low risk. In July 2009, after winning a $3 million contract 

with the Air Force, Ms. Lisa McCarthy, Vice President of Arizona 


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Business Bank, took the time to understand our company business 

model and we were able to obtain a Patriot Express Line of Credit 

and able to hire 20 new employees and to compete for several multimillion dollar contracts which we are competing for today. 

Without the cooperation and understanding of Ms. Wiest and Ms. 

McCarthy, Sonoran Technology may not be in business today. 

I am convinced that during the past two years there could have 

been a lot more small business success stories had there not been 

a lack of access to capital. 

[The prepared statement of Mr. Smiley follows:] 


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Chair WARREN. Thank you, Mr. Smiley. Mr. Lundy. 

STATEMENT OF JAMES H. LUNDY, PRESIDENT AND CEO, 

ALLIANCE BANK OF ARIZONA 

Mr. LUNDY. Thank you, Chairwoman Warren and Members of 

the Panel, for this opportunity to speak today. 

I’ve been a commercial banker in Phoenix for over 25 years and 

during that time I’ve spent my career basically making loans to Arizona-based businesses in virtually all businesses in Arizona within 

the 500-employee definition and so I have considerable experience 

lending to both really small businesses, such as Mr. Smiley’s or 

those under an SBA program, and also the businesses that Mr. Silvers referred to, those with perhaps 100-to-300 employees. 

I think that the Panel, in each of your statements—I was interested in those, and I think that the four of you summarized pretty 

well the various issues. They’re complex and they’re interactive and 

it’s difficult. So I know I provided this written statement. So let me 

just try to summarize quickly. 

I think that the Alliance Bank has run against the grain a little 

bit and we did grow loans in 2009 and we’ve grown loans in the 

first quarter of 2010. That’s been difficult. 

As relates to the specific subject of today’s hearing, I would think 

that we would have to testify that the TARP has been helpful because we’re fortunate, many community banks aren’t part of a larger bank holding company structure. We’re part of a small regional, 

I would say, and as my testimony points out, we’ve been able to 

raise $420 million in the last little over two years. $140 million of 

that came from the TARP. They’ve downstreamed about $35.5 million to us over the last 24 months and so one could say that $12 

million of our capital stock came through the TARP and then it’s 

also true that we have expanded our lending when many banks 

have not. So I think from that perspective, the TARP has been 

helpful. 

I would like to comment a little bit on some of the things that 

I think we could do to improve things. I was the one that mentioned, Mr. McWatters, the phase-in capital requirements. I 

think—and I would agree with Mr. Silvers. I basically think that 

one of the things that we all should have learned from this crisis, 

bankers, policy-makers, Congress, the regulators—I do think that 

probably the banking industry needs more capital, but I do think, 

as I say in here, that we ought to phase those capital requirements 

in strategically over the next two to three years. 

I think it’s difficult at the moment, though. Our bank, as I say 

in my testimony, has had better credit quality metrics than most 

in a very difficult environment, but they’re still not great. We lost 

money last year, primarily due to charge-offs. We made money the 

first quarter and I’m hopeful that that trend will continue. 

But I do think that, understandably so, people are concerned 

about safety and soundness of banks and so there is tremendous 

pressure from all sources to have banks raise their capital as a 

buffer against problem loans—but that’s an issue that I think is 

difficult. 

I think the other—— 

Chair WARREN. Mr. Lundy, I’m going to stop you right there. 


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Mr. LUNDY. I’m sorry. 

Chair WARREN. That’s all right. We have your written testimony. 

Thank you. I want to save time for us to ask questions. 

[The prepared statement of Mr. Lundy follows:] 


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Chair WARREN. Ms. Darling. 

STATEMENT OF MARY DARLING, CEO, DARLING 

ENVIRONMENTAL AND SURVEYING 

Ms. DARLING. Thank you, Madam Chair and Members of the 

Panel. 

I’m very honored to be here today. Darling Environmental and 

Surveying is a small, woman-owned business. We provide hightech, avatar-style 3–D surveying to engineers and architects that 

design in 3–D. 

I agree 100 percent that small business will be left behind unless 

we break the stalemate with the banks. We are very creditworthy, 

as I said. We have been under-capitalized since we started the company. We hired our first CFO in 2008 and he saw that as the biggest problem. He helped get our banking books together in a way 

that we could go to each bank very professionally. 

We were turned down 100 percent of the time in Tucson. We actually ended up getting a bank in Phoenix that understood business banking, Bank of Arizona, and finally, in mid 2009, got our 

finances in order. 

However, as soon as the TARP funding became available and we 

saw what was in the newspapers about SBA loans, in February 

and March of 2009, we tried hard to get SBA loans. We were told 

by every bank that SBA told us to go to that even though we read 

SBA loans were not asset-based loans, we were turned down. Every 

bank said that’s what you read but in reality SBA loans are assetbased. So unless we had commercial real estate, we were told we 

were not going to get an SBA 7(a). 

So we slashed expenses. We rode out the fact that clients went 

bankrupt and didn’t pay us. We cut employee numbers. We had the 

one loan from Bank of Arizona that held us through and now we’re 

in a position where we’re really building our business in that we 

have more clients than ever. We have a fabulous service that we’re 

offering and yet we are at that point where we’re going to need 

lending and our past experience shows that banks are going to ask 

for three years of our taxes and personal guarantees and they’re 

going to look at 2009, even though it was an anomaly, and we’re 

going to be denied the funding we need to grow our business. 

I think it’s a very big concern for a lot of small businesses, not 

just mine. I’m a member of the National Association of Women 

Business Owners, and I’m talking with a lot of other women with 

the same problem. So I’m very excited to know that you’re here and 

that you’re addressing this issue. 

Thank you. 

[The prepared statement of Ms. Darling follows:] 


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Chair WARREN. Thank you. Thank you very much. 

Ms. Herndon. 

STATEMENT OF LYNNE B. HERNDON, PHOENIX CITY 

PRESIDENT, BBVA COMPASS 

Ms. HERNDON. Thank you for having me here today. My name 

is Lynne Herndon, and I’m the City President for BBVA Compass. 

I, too, am fortunate to work for a bank that was able to loan 

money through 2009 and also in the first quarter of 2010. It certainly has not been an easy environment to loan money in. I think 

all of us, all the bankers at the table, understand and appreciate 

the purpose of regulatory bodies and the policies, but we also are 

struggling to try to continue to foster new loan production while, 

I think, keeping as many of our customers as we can in business 

and continuing to extend credit. 

Phoenix, more so than a lot of other cities, has experienced a 

complete fallout in the real estate market that does make it a little 

bit more difficult to recover from, if you compare it to other cities, 

and so, as we work with our regulators and work through exams, 

I do believe, as a bank, that we are trying to work with our borrowers, find out their needs and give guidance, if you will, to borrowers as to what it does take to be conventionally financed. 

Some of the constraints that we face, and I’ll mention just a couple examples to be a little more specific, are—and it does keep 

going back to the capital issue, we can’t ignore that. As borrowers, 

you know, experienced maybe a loss in 2008 but definitely a loss 

in 2009, we have to rate the performance of those companies. We 

have to acknowledge it. 

Obviously as credit becomes watched, it requires more capital. 

From a real estate perspective, interpreting the laws of FIRREA 

and trying to understand whether we have to get an appraisal solely because the economy has declined or only when we’re looking at 

a renewal or maturity. Our bank right now has a question in to 

the examiners asking for some rulings on that. 

Our preference would be to opt for cash flow, look for cash flow 

first, look for the performance in a company that shows that the 

company’s going to be a survivor and possibly not be constrained, 

if you will, by having to get an appraisal, even though there’s not 

a maturity or renewal in place. 

But if we do have to get that, we are forced to possibly rate that 

loan as a high loan to value transaction, again requiring more capital. So I know we’ve talked about a lot of this today. 

My message to you is I do think banks are in the business to 

loan money. We want to do that. We want to support our communities. Yes, we are having to balance the rules and the regulations 

of what our regulatory bodies want us to do, but I do think we’re 

trying to find the ways that we can to leave the money and leave 

the access to capital out there where possible. 

It is our responsibility, I think, to talk about creditworthiness. I 

think to use the SBA—we are a preferred lender—we use the SBA 

in start-up situations or in situations where we can’t quite qualify 

our borrower to be banked conventionally. They’re a great partner. 

I think we will continue to use them, but it’s my personal goal to 

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munity as we can meet and discuss and talk about good credit 

loans to. 

Thank you. 

[The prepared statement of Ms. Herndon follows:] 


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Chair WARREN. Thank you very much, Ms. Herndon. I want to 

make sure, as we start this, that we’re taking a full picture. So I 

just want to focus, if I can for a minute, on the banks here. 

How concerned are you about interest rate risk? I want to make 

sure we’re getting the full picture here. Is it deterring you? Does 

it deter you from lending at current low rates? Are you concerned 

about that? Ms. Herndon? 

Ms. HERNDON. Specifically rising interest rates? 

Chair WARREN. Yes. 

Ms. HERNDON. We certainly, when we underwrite loans, in particular, if they’re going to be floating rate-based, apply a sensitivity 

analysis. In some cases, if we determine that a borrower would be 

rate-sensitive with, let’s just say it’s a 200 basis point rise in interest rate, we would probably encourage a borrower to go with a 

fixed rate which, in today’s environment, the fixed rates that are 

being offered are certainly very good rates for small businesses. 

So I think our path would be if we found a borrower to be interest rate-sensitive, we would encourage a fixed rate so that the borrower would not experience that. 

Chair WARREN. Okay. I just want to be sure that I’m getting the 

picture. You’re saying it doesn’t discourage you from lending, it just 

has you—you manage for it? 

Ms. HERNDON. That is correct. We manage for it. 

Chair WARREN. Mr. Lundy. 

Mr. LUNDY. I would agree with that. At this point in the cycle 

our bank is mildly liable sensitive and, you know, we certainly 

have entire programs in place to manage our interest rate sensitivity and it’s one of the areas that I think the regulators do a good 

job of asking good questions and I don’t believe that interest rate 

sensitivity in and of itself is a particular—it’s not one of the major 

issues with respect to more lending. 

Chair WARREN. And same answer, Ms. Wiest? 

Ms. WIEST. It would be the same answer for my bank, but for 

banks in general, I think when you look at the overall risk profile 

of the bank, if the bank has a number of low fixed rates, certainly 

when you’re concerned about rising interest rates and the sensitivity of your institution, there may be a change in the way the 

borrowers are financed. 

You’re not going to be able to just give everyone a lower rate and 

fix it for a period of time. I mean that’s the reality. 

Chair WARREN. You remind me with your answer, and I observed 

this as we were reading the testimony, we only have three banks 

in front of us, we may not have the banks we should be talking 

with. Superintendent Neiman noted we had to ask Wells Fargo to 

join us and they declined. There may be other banks we should be 

talking with, as well. But I just want to make sure I’m getting the 

picture. 

The overall economy, the question about the overall economy, is 

this causing you to hold back on lending decisions, Mr. Lundy. 

Mr. LUNDY. The overall economy is very difficult and so I 

think—— 

Chair WARREN. What’s your overall outlook? 

Mr. LUNDY. I think locally we are—— 

Chair WARREN. Your local and there’s been a lot of trouble. 


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Mr. LUNDY [continuing]. Bumping along the bottom and we’re 

somewhat encouraged that things have turned and will get slowly 

better, but it’s not robust out there at all. 

So, yes, sure, we’re concerned about the economy and it does impact decisions we make and the decisions our prospective borrowers 

make. 

Chair WARREN. Ms. Wiest, did you want to add anything on 

that? 

Ms. WIEST. Yes. I’ll just give you an example. I bought my home 

in 2006 when I moved here and I asked about the lot next door. 

They said it was $250,000. I just bought it a month ago for $30,000 

from a bank. So we’ve got a ways to go here in Phoenix. 

Chair WARREN. And is this—the question I have is how much it 

plays into lending decisions. Do you worry that the people you’re 

lending to are not going to have business out there? I’m just concerned about this. I just want to understand how this factors in. 

Ms. Herndon. 

Ms. HERNDON. Well, I think clearly if you take a look at a business loan decision that we made three years ago, we didn’t worry 

very much about the economy and the economic impacts. So it is 

certainly a larger factor in our decision, but we’ve also seen a lot 

of borrowers do all the right things last year, whether through 

looking at expenses, becoming more efficient, or preparing themselves from a balance sheet perspective to where we are. 

So I don’t think it’s something that is deterring us from making 

loans to all borrowers in general. 

Chair WARREN. Are you seeing any fallout at the level where 

you’re lending from the loss of CIT and Advanta, shrinking trade 

credit, you know, the other places that people once went for credit? 

Let’s talk about even smaller businesses. Credit cards, home equity 

lines of credit. 

Are you seeing an impact from that? Ms. Wiest, you’re shaking 

your head. 

Ms. WIEST. Yes, absolutely, we are. I mean, I think what I saw 

that was interesting was I looked at a franchisee about a year ago 

and I saw them recently. They have 38 franchises, this guy that 

started a game truck thing, thought that was very interesting. I 

asked where they were getting their financing because typically it 

had been through traditional sources, credit cards, home equity, 

whatever. They are now—there is now a company out there that 

will actually take your 401(k), roll it into an entity where it becomes a self-directed 401(k) which allows you to buy stock in your 

company. 

So, as a banker, I’m very concerned about the shadow banking 

system that’s out there, but the fact that those kind of entities are 

gone, I think is forcing people to look at those types of vehicles. 

Chair WARREN. Thank you. Mr. McWatters. 

Mr. MCWATTERS. Thank you. Ms. Wiest, you mentioned this in 

your opening remarks, but I’m also looking at your testimony and 

I find this just extraordinary, that your financial institution has 39 

percent Tier 1 capital and only 50 percent leverage. You have originated $25 million in loans and you still have $16 million of capital, 

but the punch line is that you say, ‘‘We could grow the bank by 


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$100 million in new assets and not need any new capital.’’ That’s 

extraordinary. 

So you are ready to go. You’re ready to lend money, is that correct? 

Ms. WIEST. Well, it occurs to me I should have just come to these 

kind of hearings before to find customers instead of the way we 

were doing it. 

Mr. MCWATTERS. Well, I mean, I was going to say Ms. Darling 

may want to talk to you afterwards. But you’re ready to go. You 

have a $100 million and obviously you’re out looking. You’re beating the bushes. You’re talking to people. 

Why is this number here? Why aren’t you telling me you only have $5 million of additional lending capacity? 

Ms. WIEST. Well, first of all, as to the question of whether we 

want to loan, I can assure you we want to loan. We are only going 

to be profitable by wanting to loan, and I did, I think, in my testimony outline a lot of the reasons for that. 

We have looked at a lot of credit, I mean a lot of credit, and I 

hear the frustration in the small business owners’ voices and I 

think there is a perception out there that, in general, the banks 

aren’t lending but there are, I think, a lot of banks like me who 

could and want to lend. 

We don’t have the distribution center necessarily to get out 

there. We don’t have large advertising budgets. We depend upon 

our boards. We depend upon our community boards. So I think 

that’s part of the issue, as well, is just getting the word out there 

that we are looking. 

Having said that, I’ve spent 25 years in credit. I understand that, 

even though the person might be the best bet in the world, I’m not 

playing with my money. I’m playing with my shareholders’ money 

and I have to make decisions based on fact. 

Is there a secondary source of repayment? Just so you know, the 

comment about how we talk about credit, Paul and I have put together for the City of Goodyear some small business lending and 

one of the things I took in there was our loan policy with a grid 

that showed this is how much we’ll advance on each type of credit, 

this is what you need to look like. So we’re very transparent in that 

process. 

Mr. MCWATTERS. Well, I noticed that Mr. Smiley went through 

five rejections. Then he went to you and you saw something in his 

business that five people passed by. Five opportunities were lost to 

other financial institutions. 

What did you see? 

Ms. WIEST. I liked a lot of things about his background. I liked 

the fact that he was an 8(a) lender. At my last bank I took two 

women from their kitchen tables to multistate companies and I understand the 8(a) process. 

The flaw in the 8(a) process, though, is they put guys like Paul 

out there with this floodgate of work but no credit access. So they 

really need a working capital line that sort of dovetails to that. 

Now the reason he had to leave my bank is we weren’t qualified 

to do the Patriot Lines and it was the only way because he didn’t 

have a historic proven record in this industry and again I have 10 

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tracts correctly, but because he could get a Patriot loan, there was 

another bank that was able to take him to the next level. So I’m 

determined that doesn’t happen in my bank again. 

Mr. MCWATTERS. Okay. You submitted a TARP application and 

you withdrew your application and you say in your written testimony, ‘‘As our application was processing, we saw new conditions 

being added daily and witnessed the growing stigma being directed 

at TARP banks. Because we did not want to enter into an agreement with the Government who could alter the terms at any time, 

we chose to withdraw our application.’’ 

I mean that speaks for itself. I mean, do you have anything to 

add? 

Ms. WIEST. No. The risk was greater than the reward of the 

amount of TARP money we would have been eligible for. 

Mr. MCWATTERS. Okay. Do you have a slightly different feeling 

on the SBLF, Small Business Lending Fund, which may or may not 

become law? 

Ms. WIEST. You know, I heard Mr. Ivie say that the banks will 

take that. I will only take it if it’s clearly defined, if the process 

to get the money is very transparent, if it doesn’t just flow through 

regulatory agencies, and if there is a measurement, I mean, because I think the public deserves that. 

If you take the government money, you’ve got to be able to prove 

that you put it back for the purpose as intended. You heard Jim 

Lundy say that they took TARP money and they grew their bank 

and I think that’s admirable and I think in his case, the TARP 

money worked. 

I’ve got to know the process has a lot of transparency. 

Mr. MCWATTERS. Thank you. 

Chair WARREN. Thank you. Mr. Silvers. 

Mr. SILVERS. Thank you. Well, first, let me say how grateful I 

am to all of you for being here. 

The point of our holding field hearings is to hear from people like 

yourselves with businesses like yours. That very specific detailed 

experiential voice often doesn’t come through in Washington. 

Let me begin. Let me ask the small business people on the panel. 

I’m not sure it’s clear from all of our statements and so forth, but 

there are really kind of three policy choices facing the Treasury Department in using TARP money to try to help small business and 

we’re trying to oversee those choices. 

Choice one is, and I think perhaps Mr. McWatters sort of stated 

it, is basically don’t do anything, don’t try to change the market incentives and structures and so forth. Don’t put any money in. 

Choice two is to give money to banks. That’s essentially the 

SBLF proposal. Give money to banks, perhaps with some conditions and hope and try to manage it so that the money flows 

through from banks and small businesses. 

Choice three is something along the lines of what Superintendent 

Neiman said earlier, which is to try to create specialized vehicles 

that will do small business lending only. 

What advice would you have for the folks in Washington as to 

what to do? 

Ms. ANDERSON. I’ll leap on that one. I don’t know that the do 

nothing else option is a viable option. The money’s been out there. 


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It’s been working as best it can with banks as best they can and 

they’re not lending on their own criteria. We know that. They’re 

not widely lending. They are lending some. 

Giving the money to the banks for any of the programs, I would 

like to see transparency and a requirement that makes that happen, yet I’m also anti-involvement. We’re a capitalistic society. I 

like to see the free economy flow. 

I’m very, very intrigued by Mr. Neiman’s proposal, having a consortium with specific requirements and taking a look at something 

that has worked in other areas, so that those that wouldn’t necessarily get credit—start-ups, I’ve specialized in start-ups. 

There isn’t a banker in this room or probably within 10 miles of 

me that right now is interested in doing a start-up. The larger 

lenders have done that under the guise of some of the SBA preferred lender programs and other kinds of things but when you get 

right down to it, they’re all preferring to go find the top 10 people 

in an industry and to collateralize and securitize as best they can. 

So we do need an innovative idea, I think, that doesn’t bind us 

for eternity into more government intervention and handouts. I 

love that consortium idea. 

Mr. SMILEY. For six years I was an associate professor, a faculty 

member at Arizona State University School of Global Business, and 

at the national level in Washington, D.C., we hear about jobs, jobs, 

jobs. I tell you, there’s not a day that goes by that my heart is not 

just pumped with gladness when I put someone back to work because I understand that people with jobs can now spend money at 

restaurants and other services. Those establishments now pay city 

and state taxes and that’s how the economy works. It’s not very difficult to understand. 

When it comes to small business, as I mentioned in my testimony, there’s this broad brush that some big banks use. They’re 

not willing to listen to you. Every business is the same. Our business is totally different, you know. I thank God every day for the 

30-some employees I have that they can have a home. They can go 

buy goods and services. They can send their kids to school. They 

pay taxes, which we all have to do and that’s what makes the economy. 

Since 2007, as I said in my testimony, we started with four employees. We now almost have 40 and that’s amazing, but without 

people like Candace Wiest who sat down and said let me explain 

to you how lending works and she taught me about the five Cs of 

banking. From my perspective those five Cs of banking have been 

given the Heisman for small business and it’s become very subjective lending versus objective lending, and I’m not going to send a 

small business colleague of mine to any bank whose balance sheets 

aren’t correct, they don’t have a stable business, they don’t have a 

stable infrastructure. 

So the small banks understand that, but when the big banks 

don’t listen to you and they don’t return a phone call or they tell 

you as a preferred lender that the SBA turned you down, which is 

not a true statement, you know, people give up. I’ve had four or 

five colleagues of mine in the last year say I give up, I give up, I 

give up because they can’t get capital, access to capital. 


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At Sonoran, we’re a good news story, but we will only continue 

to be a good news story if the small banks and the large banks 

start to listen to us, understand what we do and then give us a fair 

shake. Are you a risk? Are you creditworthy? Just give me a 

straight answer. I’ll grow my business and I’ll grow this economy, 

and just think, if every small business in Arizona hired 10 people, 

where would we be on the national perspective of putting people 

back to work and fixing our state budget and our city budgets and 

our county budgets. 

This is not rocket science. It’s about doing the right thing, having 

regulatory oversight, but giving everyone a fair shake to make the 

American reality, not the American dream. 

Chair WARREN. If you’ll bear with us, Superintendent Neiman, 

why don’t we let Ms. Darling have an opportunity to respond, as 

well, since we’ve asked the small business owners? 

Ms. Darling. 

Ms. DARLING. Thank you. Just quickly, I agree with Ms. Anderson and Mr. Smiley. To do nothing would be terrible and what we 

need is more transparency, definitely, because we were turned 

down by a lot of banks, but I don’t think that ever went on the 

books. I don’t think you see the data because those banks never 

told us our loans were denied. They just went silent. 

It was very difficult. Sometimes I would wait four to six weeks 

and the banker wouldn’t call me, the banker wouldn’t answer my 

questions. So I never knew whether or not my loan would go 

through. 

So we do need to have respect. We do need to have different criteria that include service-based industries that don’t have as many 

assets. We also have a tax issue where we accelerate depreciation 

50 percent the first year. We buy a $150,000 laser scanner. We 

write-off $75,000. The banks look at it like it’s a loss. It is nonsensical. So I’m going to be very happy to see some changes. 

Chair WARREN. Thank you. Superintendent Neiman. 

Mr. NEIMAN. Thank you. This is probably our first experiment in 

having a panel, to my memory, where we mixed bankers and borrowers, and you see we’ve actually interspersed the bankers. So 

maybe we can play our little role in hooking up creditworthy borrowers with bankers. 

But I do want to follow up on the concept of a consortium and 

if TARP funds could be directed to banks but, in addition to utilizing those funds to leverage and to lend directly, could also use 

those funds to either invest in equity or to extend credit to a lending consortium. 

Would that be of appeal? I’d like to get the bankers’ perspective, 

if that would be a legitimate and viable use of those funds. 

Mr. Lundy, I know Arizona has the concept of a banker’s bank. 

We talked earlier that banker’s banks do not actually do direct 

lending, but is that something that, in your understanding, could 

be developed and would it be a legitimate use—a viable use—of additional TARP funds? 

Mr. LUNDY. My honest answer is I would be concerned that it 

could not be developed quickly enough in the short run. I think it’s 

a good long-term idea. 


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Arizona does have what’s called a multi-bank. It’s been around 

for a long time and it’s basically a similar vehicle to what you’ve 

described that focuses on making community development loans 

and CRA loans, and some of the larger banks invest money in it 

and it in turn makes loans. 

I believe, as I said in my testimony, that the SBA programs generally work pretty well and I would like to see some more support. 

I would support the suggestions that the director made to perhaps 

expand the size of those loans up to five million. It might address 

some of the issues that Mr. Silvers raised. 

Frankly, Mr. Neiman, I think it’s a good idea, and I don’t know 

how long it would take to get it set up, but in terms of the immediate solution, I’m not so sure it would have a great impact in the 

next year or year and a half. It’s something to put in the hopper 

for down the road. That’s my opinion. 

Mr. NEIMAN. Ms. Wiest. 

Ms. WIEST. I worked in California for 18 years prior to coming 

here and the state had a program there that was really terrific. It 

was strictly for working capital, no real estate, and they would 

guarantee up to 75 percent of a loan, a term loan, because so many 

of the small businesses do need permanent working capital. So 

they’re not going to keep being able to escalate accounts receivable 

lines. 

These guys would come in. They had a committee of regional 

bankers that looked at the loan requests and then they would guarantee 75 percent based on the covenants we put to monitor. I participated in that program for probably, I think, 12 years and I 

never had a loss and so while I like the idea of your program, there 

is also another solution, which would be to maybe have a state 

fund used for the purpose of guaranteeing smaller business loans. 

These would be $350,000 or under. So that might be another solution to think about because that was a very successful program in 

California for a long period of time. 

Mr. NEIMAN. Another appeal I think a consortium bank would 

have, particularly to a bank of your size where you don’t have necessarily the expertise necessary to focus in a new area, whether it 

be franchisee loans where a consortium could develop that. 

Ms. Herndon, any thoughts? 

Ms. HERNDON. I think my comments are similar. I think the 

multi-bank concept that already exists in Phoenix has worked. Obviously, I think they would love to have access to more capital to 

be able to participate in more lending opportunities. 

I also think that the SBA has played a great role, even in good 

times the SBA was very active, but right now more than ever with 

borrowers being more capital distressed than previously. 

I think having expansion, in particular the permanent working 

capital, the working capital line of credit programs, offered would 

be another way to stimulate loan growth. 

Mr. NEIMAN. Great. Thank you. Ms. Wiest, you talked about your 

reluctance to enter the TARP due to the stigma. 

Mr. Lundy, you were successful in taking it. What’s your view on 

this concept of stigma? You seem to have weathered the storm and 

it hasn’t seemed to have had a negative impact on you. Is that a 

correct way to assess? 


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Mr. LUNDY. Well, I think, early on it was sort of a batch of worthiness but we weren’t one of the top 20 banks that posed systemic 

risk or anything of the kind. 

But the fact that we were able to qualify for it was sort of an 

endorsement. The Government believes that we’re not going to fail 

and so I think that was helpful and, frankly, the capital itself was 

helpful. But I would agree that from a public perception standpoint 

and for how capital actually works in a bank and that at the end 

of the day all funds are fungible and that’s one of, I think, the— 

we don’t have time to talk about that today, but that’s one of the 

problems that makes accountability and tracing it difficult. 

So I do agree there is a stigma. We were successful, but I would 

not rule out—as I said in my testimony, I think if Congress is 

going to do something, it should be done fairly quickly. So, on balance, I support the program. 

Chair WARREN. I’m going to just ask a few more. I’d like to ask 

the business owners about your experiences with the SBA. We’ve 

been hearing about the banks’ experiences with the SBA and 

maybe you could say just a bit more. 

Mr. Smiley, you’re pulling the mic over like you’re ready to go. 

Mr. SMILEY. Yes. I have colleagues all over the United States and 

there are various SBA offices here and I’m here to tell you that the 

Phoenix office is absolutely outstanding. They have monthly meetings. If you don’t have information about the Small Business Administration, then you live under a rock. They do great work with 

workshops, with SCORE, outreach to the community. They were in 

Goodyear last fall and so Mr. Blaney and his staff—you know, 

they’re undermanned. I think their office was probably reduced by 

about 40 percent the last couple of years, you know. I tip my hat 

to them. They do outstanding work. 

Chair WARREN. Okay. Thank you, Mr. Smiley. Ms. Darling. 

Ms. DARLING. Well, we went to SBA. We got a list of lending institutions. We went to each one of those institutions. We were 

turned down because we didn’t have the assets, partly because we 

utilize an accelerated depreciation schedule of assets for tax purposes. The other reason was because we don’t own commercial real 

estate. 

Chair WARREN. So your concern about SBA lending is that you’re 

saying it’s really far more asset-based than it is alleged to be? 

Ms. DARLING. Yes, for service industries. 

Chair WARREN. Ms. Anderson. 

Ms. ANDERSON. Yes, that’s my experience, as well. The sba.gov 

website is amazing. There’s all kinds of great information out 

there. The control and power is definitely within the individual 

lenders, the individual bankers, and the reason that you see community and regional banks here today is because these are the people that are lending. These are the people that are in the community. These are the people that are—it is a relationship-based business and the SBA loans are a minuscule number of the loans that 

are out there. 

The 90 percent guarantee definitely helped, but the stories that 

you’ve heard from the two of them and in my testimony—I’ve given 

you a story, also, of some of my clients and I could go on and on 

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ple have been bankrupted because they’ve not been advised that 

that loan that they got a letter of credit for, a letter of intent for 

actually went through. 

It’s the terminology. It’s the devil is in the details, you know, not 

understanding what those criteria are. For example, a lender will 

look at a loan package and the business plan and we coach our clients through this whole process and they might be looking at a 

hair salon and they might compare the industry ratios to a different kind of salon that isn’t a booth rental and it isn’t a med spa 

and it isn’t whatever and so they’ve got two or three reasons why 

they don’t want to do this loan from the get-go. It’s a start-up. It’s 

whatever it is. It’s going to be too small. They don’t like the location. The person has never owned a successful chain of salons before, whatever that elusive criteria is, and the criteria needs to be 

made plain. The SBA can help with that. 

Chair WARREN. Thanks very much. Mr. McWatters. 

Mr. MCWATTERS. Thank you. That was pretty much my question, 

but I noticed in Ms. Darling’s testimony that she makes the point 

that there’s a lot of real estate lending that’s been going on in 

Phoenix for the last several years. 

Now all of a sudden that’s stopped or at least it’s slowed down. 

So you take a business like hers which is a cash flow business 

which is based off of earnings before interest, taxes, depreciation, 

amortization-type standard, and she’s running into bankers who 

don’t really know how to lend against that credit. 

I mean, I lived in Dallas during the S&L crisis. We knew how 

to loan against real estate but once it blew up, it was a different 

story. 

So the bankers on the panel, are you lending against cash flow 

now, is it changing, or are you still looking at real estate transactions? 

Ms. WIEST. Well, you’re looking at me, so I’ll go first here, but 

two things. 

Number one. Yes, we are lending and it really isn’t that difficult 

if you understand cash flow lending in general, whether it’s real estate or C&I loans, whatever, and I think the banks have better 

models. I survived the recession in 1988 over here and 1991 in 

California. So there are plenty of models out there who help you 

do it better. 

I also think the interesting part is, we were talking about the 

SBA, we’ve done three SBA loans, 504s, for small business owners 

to be able to take advantage of this rotten real estate market. So 

that is going on out there, but we are lending on accounts receivable. Government receivables are difficult. You’ve really got to have 

a staff that could get in there and control your collateral is the 

problem. 

So I think if you asked any regulatory body, they would tell you 

that you can’t just have a primary source of repayment be we’re 

going to collect these receivables. There has to be some secondary 

source of repayment because stuff happens. 

Mr. LUNDY. I would agree with that. I mean, the whole banking 

model—the community bankers here aren’t investment banks. We 

don’t get entrepreneurial return. We rent money, and we need to 

have two ways out and the first way out, we can all agree on, the 


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business is going to make money and that cash flow is going to pay 

the loan off and if it doesn’t, we need some other source of money, 

whether it’s personal guarantees that have something behind them, 

whether it’s a lien on real estate, residential or commercial, and obviously those two things have been impacted. The values have been 

impacted. 

Sometimes the second way out, because the nature of the business and the collateral is somewhat specialized, that’s where I 

think the SBA and that guarantee can come in. Everything else 

makes sense, but there’s sort of a hole because of perhaps the intangible nature of the assets, but at the end of the day, bankers 

rent money. We lend our shareholders’ money and the depositors’ 

money that are FDIC-insured and we cannot take entrepreneurial 

risk, and I think there’s a disconnect sometimes between that reality and the borrowing public, but it is a reality. 

Chair WARREN. Mr. Silvers. 

Mr. SILVERS. Thank you. Ms. Wiest, where is the money that you 

are not lending out invested in? 

Ms. WIEST. Actually, we have some in securities where we are 

earning a whopping three to four percent and we have right now 

about $3 million in overnight funds where we are earning .25 percent. 

Mr. SILVERS. When you say—I mean, obviously without getting 

into specific names, when you say securities, what—— 

Ms. WIEST. Mortgage-backed. I had one corporate which we sold 

recently, but, yes, mortgage-backed securities. 

Mr. SILVERS. Thank you. Mr. Lundy, you said a few moments ago 

in response, I think, to Superintendent Neiman’s question that you 

thought one of the major issues around TARP and the declining 

prestige of being a TARP recipient was that money’s fungible and 

it was very difficult for there to be any accountability in the capital 

purchase program as to what the money was really being used for. 

That strikes me as, in relation to any further TARP activity 

around small business lending, that you’d want to silo it, that you’d 

want to be sure it was really going to small business and small 

business only. Am I hearing you right? 

Mr. LUNDY. Well, I think to get the accountability that you 

talked about, some mechanism to do that would be—from a policy 

standpoint—if Congress decides to do this and this is a specific result that you want, I believe that some sort of segregation or accountability of that nature would be ideal, but it is difficult. 

Capital ratios are capital ratios and you asked her what her ex- cess liquidity is invested in. We’ve now got about $240 million in 

AAA mortgage-backed, Ginnie Mae, et cetera, securities and, unfortunately, about $275 million in overnight at 25 basis points. 

So we do need to put money out and we are putting money out, 

but it’s difficult. 

Mr. SILVERS. I should just note a moment of self-congratulations 

to us that we’ve been calling for some accountability around how 

the TARP money was used within banks since, I think it is, December of 2008. That’s the nature of an advisory oversight panel. 

Ms. Herndon, in your written testimony you talked about the fact 

that your bank is an affiliate of a large Spanish institution that I 

gather is fairly healthy as large institutions go these days. 


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Can you observe, and I’d welcome any other panelists to observe, 

really this question of capital strength. You know, each of you, because of your affiliates, because of capital raises, each of you are 

pretty strong in terms of capital. 

When you look across the banking sector as a whole, the large 

institutions that dominate the deposits in Phoenix, and other small 

institutions, have we sort of picked out all the outliers to have with 

us here today and what conclusions can we draw about that, about 

the question of capital strength in relation to small- and mediumsized business lending? 

Ms. HERNDON. Well, I actually think it compares the same when 

you talk about borrowers in general. I mean, clearly a lot of what 

borrowers are finding is their excess liquidity, their excess capital 

that they had maybe heading into these times has been diminished 

because they’ve had to use it. 

Again, because of the strength of our parent, they were able to 

inject capital for us so that we could continue to loan money. Had 

we not been acquired by them two years ago, we would have had 

a much larger percentage of real estate unable to be offset, if you 

will, by the overall portfolio of the bank. So it’s clearly been an 

added benefit for us. 

But I do think that there are many banks in Phoenix that are 

strong that do want to loan money but are struggling to sort of get 

around the whole issue of the capital constraints, dealing with a lot 

of the issues that we’ve been talking about today, either the existing risk in the portfolio or the pending risks that might be coming 

from reappraisal due to real estate. 

I mean, no banks here have been able to escape the impact of 

the real estate market. 

Ms. WARREN. Superintendent Neiman. 

Mr. NEIMAN. Mr. Lundy, a follow-up on your question about 

transparency, and we all acknowledge that money is fungible and 

when capital goes in how that’s converted to loans. 

But can you identify loans that would not have been made but 

for the receipt of that $35 million that came through the TARP 

Fund? 

Mr. LUNDY. Well, consistent with my comment, not specifically, 

no, but I can tell you that, as I said in my written testimony,—— 

Mr. NEIMAN. There were loans that were made but—— 

Mr. LUNDY. Well, sure. We made—we grew loans. 

Mr. NEIMAN. But only the result of—— 

Mr. LUNDY. $66 million last year. We’ve grown loans $34 million 

in the first quarter. That’s a $100 million in loans. That’s pretty 

good loan growth for our banks. 

Mr. NEIMAN. Loans that would not have been made but for the 

TARP? 

Mr. LUNDY. Yes, and if we—well, let’s just put it this way. Wellcapitalized basic capital is 5 percent. You know, you can get a lot 

of conversation. Is eight the new five or is eight the new six, but 

there is, from every direction, pressure on capital and we’re maintaining 6 percent leverage capital. 

Were we not doing that, we would not have felt comfortable 

growing and expanding the balance sheet to the extent that we 


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have on both loans and deposits. So indirectly it has had a positive 

effect. 

Mr. NEIMAN. I want to ask the borrowers and maybe even the 

bankers, since the large banks are not here, I’d like to understand 

from the small businesses, do you see discernible differences in underwriting standards or dealing with you in the application process? 

Ms. ANDERSON. Absolutely. Night and day, an absolute night and 

day difference. The smaller banks spend the time to shoulder to 

shoulder—start out with like a 15-to-20-minute quick back of the 

napkin, here’s what needs to happen, here’s what I don’t like about 

your financials, here’s what I don’t like about your package, and 

they really befriend that borrower nine times out of 10 in a way 

that the large lender does not do. 

The loan application goes off into the abyss of an application center in Houston somewhere and it’s lost. Arguing the merits of the 

loan package for the borrower or their financial condition is much 

more successful in a relationship-based application than it is in a 

larger bureaucracy. 

Mr. NEIMAN. And maybe from the bankers’ perspective, now in 

the role of competitors, are you seeing differences in competing 

against those three largest institutions that comprise 70 percent of 

the deposits? 

Mr. LUNDY. Well, a couple of things. I think Mr. Silvers’ point 

earlier is worthy of everyone’s note. Didn’t you say that, in 1999, 

15 percent of these loans were made and then, by 2008 or something, before the great abyss, 38 percent or something were made 

by large national institutions and that’s basically been the trend 

about the last 15 years. Increasingly smaller business loans because of the economies of scale are underwritten essentially as consumer loans with credit scoring models. 

I think this recent huge recession has surprised everybody’s models. So, there are industry dynamics that have forced—you know, 

I mean, we’re dealing with what we’re dealing with and it took 20 

years to do it and so now the more hands-on relationship approach 

that I think is a friendlier way to do it, I mean, if you’re really 

going to get that to happen, you have to have community bankers 

who are willing to meet with people one on one, but it’s difficult. 

Chair WARREN. I want to thank you all very much. We really appreciate your coming and spending your time here with us today. 

We also appreciate your giving us your written testimony. We 

will make sure that everything that you’ve submitted to us will be 

made part of the record for this hearing. So this panel is also dismissed. Thank you, again. We really appreciate it. 

If there are members of the public who would like to make any 

comments, we have a microphone set up. We keep them brief but 

people are welcome to, if they want. Seeing no one rushing to the 

microphone, I am going to assume then that we have concluded our 

business. 

Again, thanks to the University of Arizona, thanks to the senators and congressmen here from Arizona. We appreciate all their 

help so that we could come here in order to learn more about small 

business lending. What we’ve learned today will very much help us 

in this process. 


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98 

Thank you all. 

[Whereupon, at 12:05 p.m., the meeting was adjourned.] 


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