Wall Street financial institutions are taking the heat for beginning a credit crunch in the aftermath of the financial crisis. While major United States of America financial institutions received billions in government bailouts, they’ve been refusing to make loans. Financial institution executives at the White House were confronted by President Obama last week who said we need to be lending more to small businesses. One of the ideas suggested was to take a “second look” at loan applications. That meeting encouraged major United States of America financial institutions to start the second look products. It might actually be working. We have seen nine months worth of changes.
Second look gains traction
When the president challenged Wall Street banks to take a second take a look at lending last December, he actually went further. Obama asked in the meeting that bankers “explore each and every possible way” to increase small company lending, reports the Associated Press. He suggested that they take a “third and fourth look” as well. Richard Davis said he’d present the idea to the Financial Services Roundtable as the chairman of the group. He is also the United States Bancorp CEO.
How we used to lend
Almost all the members of the Financial Services Roundtable are using second-look products just nine months later. Members contain Bank of America Corp., J.P. Morgan Chase and Co., PNC Financial Services Group Inc. and U.S. Bancorp. As outlined by the Wall Street Journal, it appears like old-fashioned lending is happening with the second look program. A lender has more to consider when it comes to choosing who can borrow so the relationships and track record of the borrower come into play along with the credit scores analysis and other industry driving data. Financial institutions are doing anything they can to make individuals look worthy of loans. This includes asking about unreported sources of income along with asking about credit history errors. The Journal reports on the second look program. It says an impact can be seen. There has been the first easing of lending standards since 2006 reports the Federal Reserve survey of senior loan officers that was done last month.
Can occasionally be worth the second look
The 2nd look program is helping banks to stop avoiding risk. They pay more however love the business opportunity being done here. At bNET, Alan Sherter says that banking institutions may not be putting risk into financing as much as they are using the second look program for PR purposes. Also, the loans that are being made are unlikely to jump-start the small business engine that could reduce the joblessness rate. Numerous smaller businesses hope to expand although they mostly want to just survive the economic recession. These second looks will greatly help these businesses last just a little longer.
Further reading
Associated Press
msnbc.msn.com/id/34416646/ns/business-us_business/
Wall Street Journal
online.wsj.com/article/SB10001424052748704062804575510302866961116.html
bNET
bnet.com/blog/financial-business/due-credit-banks-offer-second-chance-to-small-businesses-rejected-for-a-loan/7715
