Ben S Bernanke: Financing needs of Michigan's small businesses
Brief remarks by Mr Ben S Bernanke, Chairman of the Board of Governors of the Federal
Reserve System, at the Meeting on addressing the financing needs of Michigan's small
businesses, Detroit, Michigan, June 3, 2010.
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Thank you, President Evans. I am pleased to be here in Detroit to be part of an ongoing and
very important discussion about improving access to credit for small businesses. I would
particularly like to thank the staff of the Federal Reserve Bank of Chicago and President
Evans for organizing this event.
Today's meeting is part of a series of more than 40 such gatherings that the Federal Reserve
System is conducting across the country. Entitled Addressing the Financing Needs of Small
Businesses, these forums are designed to elicit ideas and information that will help the
Federal Reserve and others respond effectively to both the immediate and longer-term
concerns of small businesses. Today's event brings together representatives from banks and
other private lenders, community development financial institutions, bank supervisors, other
federal and local government agencies, and small business trade groups. Each of you brings
an important perspective to this issue, and I would like to thank all of the participants for their
willingness to share their ideas.
Over the past two years, a concerted effort by the Federal Reserve and other policymakers
has helped to stabilize our financial system and our economy. Following a sharp contraction
in late 2008 and early 2009, we are now in the fourth quarter of economic expansion, with
jobs once more being created rather than destroyed. Nonetheless, important concerns
remain. One particularly difficult issue is the continued high rate of unemployment. High
unemployment imposes heavy costs on workers and their families, as well as on our society
as a whole. I raise this issue here because healthy small businesses, including start-ups as
well as going concerns, are crucial to creating jobs and improving employment security.
Unfortunately, lending to small businesses has been declining. Indeed, outstanding loans to
small businesses dropped from almost $700 billion in the second quarter of 2008 to
approximately $660 billion in the first quarter of 2010.1 An important but difficult-to-answer
question is how much of this reduction has been driven by weaker demand for loans from
small businesses and how much by restricted credit availability. To be sure, the distinction
between demand and supply is not always easy to make. For example, some potential
borrowers have been turned down because lending terms and conditions remain tighter than
before the financial crisis, perhaps reflecting banks' concerns about the effects of the
recession on borrowers' economic prospects and balance sheets. From the potential
borrower's point of view, particularly a borrower who has been able to obtain loans in the
past, these changes may feel like a reduction in the supply of credit; from the lender's point
of view, the problem appears to be a lack of demand from creditworthy borrowers. Although
lenders and borrowers may have different perspectives, our collective challenge is to help
ensure that creditworthy borrowers have access to credit so that, should they choose, they
can expand their businesses or increase payrolls, helping our economy to recover.
At the Federal Reserve, we have been working to facilitate the flow of credit to viable small
businesses. We helped in bringing capital from the securities markets to small businesses
through the Term Asset-Backed Securities Loan Facility - the TALF program. Our bank
stress tests of a year ago also drew private capital to the banking system, which helped
offset credit losses and provided the basis for increased lending. I know that earlier in this
conference you heard about the various interagency policy statements issued to banks and
examiners, reinforcing our message that, while maintaining appropriately prudent standards,
lenders should do all they can to meet the legitimate needs of creditworthy borrowers.2 Doing
so is good for the borrower, good for the lender, and good for our economy. We have also
conducted extensive training programs for our bank examiners, with the message that
encouraging lending to small businesses that are well positioned to repay is positive, not
negative, for the safety and soundness of our banking system.
As we continue to examine the factors affecting small business lending, our thinking will be
shaped by information from diverse sources. For example, our most recent Senior Loan
Officer Opinion Survey on Bank Lending Practices suggests that, for the first time since the
crisis began in 2007, most banks have stopped tightening credit standards.3 We also know,
from the survey conducted by the National Federation of Independent Business that while
only 8 percent of small businesses list access to credit as their principal immediate economic
problem, just 40 percent of small businesses attempting to borrow in 2009 had all of their
credit needs met.4
Surveys like the two I just mentioned are informative, but getting a full picture also requires
hearing from knowledgeable people with diverse perspectives on these issues. Meetings like
this one allow us to gather intelligence we and others can use to facilitate the flow of credit to
small businesses - for instance, by identifying specific credit gaps, clarifying examiner
expectations and procedures, improving coordination of small business support services, and
ensuring the availability of technical assistance for loan applications. Thus we can help
ensure that small businesses are able to participate in and contribute to the recovery. The
findings from the entire series of meetings sponsored by the Federal Reserve will be
presented at a culminating conference at the Board of Governors in Washington later this
summer.
Learning from people engaged with small businesses and small business credit, like those
here today, is vital if we are to make progress. I look forward to hearing your ideas and
concerns, and thank you again for joining us.