stimulus

Japanese Finance Minister Seeks to Firm Up Position on Inflation Targets

December 28, 2012 by NewsMaker Leave a Comment

TOKYO — Taro Aso, the newly appointed finance minister of Japan, said Friday that he wants the government to firm up its position on an accord with the central bank on an inflation target in January, before the bank’s next policy meeting, to attack the country’s entrenched deflation.

Mr. Aso also said the Japanese authorities stood ready to act against speculators’ driving the yen up or down excessively, saying that such activity could cause difficulties for the economy.

Prime Minister Shinzo Abe’s government is pursuing a policy of aggressive monetary easing — manipulation of interest rates and money supply — and heavy spending to beat deflation and weaken the yen and calling on the Bank of Japan to adopt an inflation target of 2 percent, double the current target.

Asked about the timing of a policy accord on the inflation target, Mr. Aso, a former prime minister, said it could come in January after the government mapped out an extra stimulus budget, shortly compiling requests Jan. 7 and before the Bank of Japan holds its next policy meeting Jan. 21.

The Bank of Japan eased monetary policy last week and has promised to debate setting a new price target at the January meeting.

The yen fell to its lowest level in more than two years versus the dollar Friday, to 86.64, under pressure from expectations that the new Japanese government would push the central bank into more aggressive easing. The yen strengthened in later trading.

“If excessive rises or falls in the yen due to speculation cause trouble for a lot of people, intervention would be a powerful tool, so there’s no reason why we would not use it,” Mr. Aso said.

“Under the current situation, where movements are gradual, I think it should basically be left to market mechanisms and fundamentals,” he added.

Asked whether Japan’s efforts to ease monetary policy and weaken the yen might lead to competitive currency devaluations, Mr. Aso said: “It’s wrong to say Japan is intervening unreasonably.”

Potentially adding more pressure on the Bank of Japan was the release of data Friday showing that Japanese factory output had fallen 1.7 percent in November, more than triple the median market forecast for a 0.5 percent drop. That followed a 1.6 percent gain in October, the first rise in four months.

Japanese manufacturing activity also put in a bleak performance in the Markit/JMMA Japan manufacturing purchasing managers index for December, released Friday, which declined at its fastest pace in more than three years.

Separate data released Friday showed Japan’s core consumer prices, which exclude volatile fresh food prices, edged down 0.1 percent in November from the level of a year earlier, in line with the median market forecast.

“If you look at data closely, there are also signs the economy will probably be bottoming out, so the data could simply offer the government a pretext to use its stimulus plan to support the recovery,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Many economists warn that Mr. Abe’s emphasis on stimulus might have only short-term effects.

Article source: http://www.nytimes.com/2012/12/29/business/global/japanese-finance-minister-seeks-to-firm-up-position-on-inflation-targets.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: jan 21, money supply, stimulus

Japan Leader Keeps Up Pressure on Central Bank to Stimulate Economy

December 25, 2012 by NewsMaker Leave a Comment

TOKYO — The incoming Japanese prime minister, Shinzo Abe, kept up his calls on Tuesday for the Bank of Japan to drastically ease monetary policy by setting an inflation target of 2 percent, and he repeated that he wants to tame the strong yen to help revive the economy.

Mr. Abe, who will be sworn in on Wednesday and is expected to appoint his cabinet on the same day, is prescribing a mix of aggressive monetary policy easing and big fiscal spending to beat deflation and rein in the strong yen.

“The economy, diplomacy, education and rebuilding in the northeast,” which was hit by the 2011 tsunami, quake and nuclear disaster, “are in a critical situation. I want to create a cabinet which can overcome this crisis,” Mr. Abe told a news conference.

“We have advocated beating deflation, correcting the strong yen and achieving economic growth during the election, so we must restore a strong economy,” he said, adding that the stagnant economy was also undermining Japan’s diplomatic clout.

Mr. Abe, who quit abruptly as prime minister in 2007 after a troubled year in office, repeated that his new government hoped to sign an accord with the Bank of Japan to aim for 2 percent inflation, double the central bank’s current target.

“Once I become prime minister, I will leave it up to the BOJ to decide on specific measures on monetary policy,” Mr. Abe told a meeting with officials from the Keidanren, the major business lobbying group in Japan.

“I hope the BOJ pursues unconventional measures, including bold monetary easing,” he added.

His remarks were taken as maintaining pressure on the central bank to expand monetary stimulus more forcefully in order to tackle the deflation that has dogged Japan for more than a decade.

Mr. Abe’s opposition Liberal Democratic Party won by a landslide in this month’s lower-house election just three years after suffering a crushing defeat.

The party has threatened to revise a law guaranteeing the Bank of Japan’s independence unless the central bank sets a 2 percent inflation target. The B.O.J., which eased monetary policy in December, has promised to debate setting a new price target at its next policy-setting meeting on January 21-22.

Mr. Abe and his coalition partner, Natsuo Yamaguchi, the head of the small New Komeito party, agreed on Tuesday to set the inflation target and compile a big stimulus budget, Mr. Yamaguchi told reporters after the two met.

Mr. Abe is expected to draft an extra budget by mid-January.

Article source: http://www.nytimes.com/2012/12/26/business/global/japan-leader-keeps-up-pressure-on-central-bank-to-stimulate-economy.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: bank of japan, clout, stimulus

Economix Blog: The Fed vs. the Fiscal Cuts: Not a Fair Fight

December 12, 2012 by NewsMaker Leave a Comment

CATHERINE RAMPELL

Dollars to doughnuts.

Since the financial crisis began, the Federal Reserve has taken the lead on stimulating the economy. It starting easing long before the Recovery Act was even a twinkle in Congress’s eye, and it has continued its stimulus efforts in the last couple of years to counteract fiscal tightening while the Recovery Act was petering out. As Mervyn A. King, the governor of the Bank of England, explained this week, central banks around the world have pursued monetary easing to offset fiscal tightening.

The problem is that fiscal tightening is now a much bigger potential negative for the economy than monetary easing is a positive.

The Fed announced today that it would provide more stimulus, by purchasing $45 billion in long-term Treasuries each month after its continuing “Operation Twist” concludes this month. This was welcome news to the markets, which have been clamoring for the Fed to do more, even though the marginal returns to more Fed stimulus get smaller and smaller. The first big injection of money into the economy does a lot; the second, not quite as much; the third, much less; and so on.

Meanwhile Congress is contemplating fiscal tightening that is much more potent than the Fed’s easing.

Forecasters have estimated that all the spending cuts and tax increases scheduled for the end of the year would shave around 3 to 3.5 percentage points from output growth next year. Few expect Congress to let this happen, of course.

Still, the policy compromise that many insiders do anticipate — eliminating most of the draconian spending cuts scheduled for 2013, extending the Bush-era tax cuts for all but the highest earners, and allowing the payroll tax holiday and emergency unemployment benefits to end as scheduled — will probably shave 2 to 2.5 percentage points off output growth early next year, according to Charles Dumas, chairman of Lombard Street Research. To put that in context, output growth for 2012 is shaping up to be only about 1.7 percent.

It’s no wonder that Ben S. Bernanke, the Fed chairman, has urged Congress to engage in more stimulus. More recently, he pleaded with them to at least not engage in the anti-stimulus that austerity measures amount to. The Fed has been going into overdrive, but even the most aggressive monetary policies are unlikely to reverse the output damage that severe fiscal tightening is expected to cause.

Article source: http://economix.blogs.nytimes.com/2012/12/12/the-fed-vs-the-fiscal-cuts-not-a-fair-fight/?partner=rss&emc=rss

Filed Under: Economy News Tagged With: percentage points, stimulus, treasuries

Economix Blog: Casey B. Mulligan: Millions Caught by the Social Safety Net

November 23, 2011 by NewsMaker Leave a Comment

Casey B. Mulligan is an economics professor at the University of Chicago.

Despite the severe recession, relatively few people saw their living standards fall into poverty, thanks to the social safety net.

Today’s Economist

Perspectives from expert contributors.

According to the Center for Budget and Policy Priorities, the percentage of the United States population living in poverty increased by 0.6, to 15.5 in 2010 from 14.9 in 2007.

The poverty measure refers to resources available to families, accounting for the taxes they pay and subsidies they receive. Considering all that happened in the economy over those three years, 0.6 percentage points is quite a small change. Measures of the poverty rate typically change more than that over any three-year interval.

The study found that many people were technically above the poverty line in 2010, although their incomes were low, because they received government assistance like unemployment insurance, food stamps and refundable tax credits. The government assistance permitted them to have living standards above poverty, even while their market incomes were below the poverty line.

Were it not for government assistance, the study found, the recession would have pushed 4.2 percent of the population into poverty, rather than 0.6 percent.

One interpretation of these results is that the safety net did a great job: For every seven people who would have fallen into poverty, the social safety net caught six. Perhaps if the 2009 stimulus law had been a little bigger or a little more oriented to safety-net programs, all seven would have been caught.

Another interpretation is that the safety net has taken away incentives and serves as a penalty for earning incomes above the poverty line. For every seven persons who let their market income fall below the poverty line, only one of them will have to bear the consequence of a poverty living standard. The other six will have a living standard above poverty.

The safety net was not as effective before the recession began. As I explained in my last two posts, government assistance programs have not only supported more people but become more generous, thanks to changes in benefit rules since 2007.

Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

Article source: http://feeds.nytimes.com/click.phdo?i=d084615bcb82599b8a4d1d4d6a8a95a0

Filed Under: Economy News Tagged With: expert contributors, safety net, stimulus

G.O.P. Urges No Further Fed Stimulus

September 21, 2011 by NewsMaker Leave a Comment

The letter was sent in the midst of a two-day meeting in which Fed officials are widely expected to undertake policies to lower long-term interest rates. That move would be intended to loosen up credit in hopes of promoting growth. The meeting ends Wednesday, and the Fed is expected to release a statement Wednesday at 2:15 p.m.

“We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy,” said the letter, signed by four of the top Republicans in Congress: Mitch McConnell of Kentucky, the Senate Republican leader; Jon Kyl of Arizona, the Senate Republican whip; House Speaker John Boehner of Ohio and House Majority Leader Eric Cantor of Virginia.

The Fed’s chairman, Ben S. Bernanke, has not said further stimulus was in the works, but economists and analysts have repeatedly asserted that they believe the central bank will announce more easing.

“I just don’t think the Fed will sit idly as momentum fizzles in this recovery,” said Dana Saporta, a United States economist at Credit Suisse.

Minutes from the Fed’s latest meeting revealed sharp dissent within the group of policy makers, so further stimulus is not necessarily a sure bet.

As the Republican letter notes, economists are divided on how much the move would help the stalled recovery. The Fed, after all, has tried several rounds of monetary stimulus in the last four years.

Republican Congressional leaders expressed not only skepticism that further easing would improve the recovery, but also concerns that such actions might be damaging.

“Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers,” the letter from Republicans said.

Many economists, however, are unconvinced by these risks and argue that a weakened dollar would be good for the country because it would make American exports more attractive.

With unemployment at 9.1 percent and Congress unable to agree on fiscal policies that might encourage job creation, many advisers have been calling on the Fed to continue using whatever ammunition it has left.

The Federal Reserve is an independent body whose decisions do not have to be ratified by the president or Congress, and efforts to influence monetary policy are discouraged to maintain its credibility.

“Even if I agreed” with the Republican letter, Tony Fratto, a former adviser to President George W. Bush, wrote in a Twitter post, “I’d still disagree with the effort to put public political pressure on Bernanke.”

Over the years, there have been many efforts by members of both parties, from both the White House and Congress, to influence Fed policies, according to Allan H. Meltzer, a political economy historian at Carnegie Mellon.

Less than a year ago Michele Bachmann, a Minnesota congresswoman who is running as a Republican presidential candidate, sent a letter to Mr. Bernanke urging him to refrain from the last round of stimulus, which the Fed ultimately decided to do.

In recent months other Republican presidential candidates have stepped up their attacks on Fed policy, with Rick Perry, the governor of Texas, calling further easing “treasonous.”

Fed critics have said they are merely trying to counter pressure from Democrats for the Fed to do more.

“This is the most politicized Fed we’ve ever had,” Mr. Meltzer said. “They’ve been doing the Treasury’s work for quite some time, buying things like Treasuries and bonds. It’s no surprise that there’s political pressure coming from the other direction.”

The Federal Reserve was meant to be independent so that it would be shielded from short-term political interests, and Fed officials have repeatedly said they are unmoved by external political pressures. A Fed spokeswoman acknowledged receiving the letter on Tuesday evening but she declined to comment further.

Appearing to cave to political interests — on the left or the right — could compromise the Fed’s authority and jolt markets even more than a popular or unpopular policy decision.

If anything, Federal Reserve members seem to be trying show their ability to exert their own influence. Traditionally, Fed officials have refrained from commenting on fiscal policy except in the vaguest of terms, but in an August speech Mr. Bernanke called on Congress to avoid steep spending cuts in the near future. He also gave specific recommendations for fiscal measures to promote long-term growth.

Article source: http://feeds.nytimes.com/click.phdo?i=c57640bd34c75979f52cfc534b1a7a17

Filed Under: Economy News Tagged With: economists, fed officials, stimulus

With No New Jobs in August, Calls for Urgent Action

September 3, 2011 by NewsMaker Leave a Comment

The dismal showing, the first time in 11 months that total payrolls did not rise, was the latest indication that the jobs recovery that began in 2010 lacked momentum. The unemployment rate for August did not budge, remaining at 9.1 percent.

As President Obama prepared to deliver a major proposal to bolster job creation next week, the report added to the pressure on the administration, on Republicans who have resisted any new stimulus spending, and on the Federal Reserve, which has been divided over the wisdom of using its limited arsenal of tools to get the economy moving again.

The White House immediately seized on the report as evidence that bold action was needed, calling the unemployment rate “unacceptably high.” Secretary of Labor Hilda L. Solis said in an interview that she hoped the president’s proposals would be embraced by Congress. “If they’re not supported, then he’s going to take it out to the public,” she said.

Republicans, in turn, argued that the numbers were further proof that the policies of Mr. Obama, whom they quickly dubbed “President Zero,” were not working. The lack of growth in nonfarm payrolls was well below the consensus forecast by economists of a 60,000 increase, which itself was none too optimistic. It was a sharp decline from July, which the Labor Department on Friday revised to show a gain of 85,000 jobs.

August’s stall came after a prolonged increase in economic anxiety this summer that began with the brinksmanship in Washington’s debt-ceiling debate, followed by the country’s loss of its AAA credit rating, stock market whiplash and renewed concerns about Europe’s sovereign debt.

On Friday, Wall Street stocks indexes promptly lost more than 2 percent of their value at the opening of trading, with the Dow Jones industrial average down 253 points by the close of trading, and some economists upgraded their expectations for a double-dip recession.

The total employment figure, a monthly statistical snapshot by the Department of Labor, appears slightly more negative because 45,000 Verizon workers were on strike when the survey was taken and their jobs were not included. They will reappear in next month’s total.

But even factoring in the Verizon jobs, private sector growth was the slowest it has been since May of last year. In addition, the report showed that job growth in June and July was softer than previously thought.

“As long as payrolls are weak, you will continue to hear cries of not just recession risk, but cries that the United States is in a recession and we just don’t know it,” said Ellen Zentner, the senior United States economist for Nomura Securities.

Economists blamed both sluggish demand for goods and services and the heightened uncertainty over the economy’s direction for the slow pace of job creation, saying political deadlock was creating economic paralysis.

“There is really a darkening cloud that seems to hover over the U.S. economy because of the lack of progress being made on economic issues,” said Bernard Baumohl, the chief economist at the Economic Outlook Group. “There is extreme frustration with Congress and the administration not working together to address the fiscal issues.”

Government continued to shed jobs over all, though small gains were posted at the state level, the Labor Department reported. Local governments, on the other hand, lost 20,000 jobs.

Two of the bright spots in the economy over the last year, manufacturing and retail, lost steam, falling by 3,000 and 8,000 jobs, respectively, in August. The health care sector added 29,700 jobs.

The number of long-term unemployed — people out of work for 27 weeks or more — remained about the same as in July, at 6 million , as did the median duration of unemployment, at 19.6 weeks compared with 19.7 weeks in July.

The general unemployment rate, which counts only people who looked for work in the previous four weeks, held steady at 9.1 percent. But a broader measure that includes people who have looked for work in the last year and people who were involuntarily working part-time instead of full-time, fell slightly to 16.1 percent. The percentage of working-age adults who were employed, already at its lowest rate since 1983, ticked down to 58.5 percent from 58.6 percent.

Though unexpectedly low, the jobs report may not change the mainstream view among economists that the economy will stay in growth mode, albeit at a level that is barely perceptible, much less comforting, to Americans without jobs.

“We’ve got at least another 12 months of difficulty to go through,” said Steven Ricchiuto, United States economist for Mizuho Securities USA. “I know that doesn’t help politicians who are worried about the elections.”

It is unclear whether the report increases the chances that Congress will act on any of the recommendations President Obama may make next week, such as a tax incentive for companies to hire new workers. But several economists said that given the fragility of the recovery, the payroll tax cut and extended unemployment benefits, both set to expire at the end of the year, should be renewed.

“It’s probably not the time for adding to fiscal drag,” said Jim O’Sullivan, the chief economist for MF Global. He said that together the tax cut and unemployment benefits account for 1 percent of the gross domestic product.

Some analysts had already downgraded their forecast for the jobs numbers on Thursday based on new economic indicators including weaker online job advertising, a rise in announced layoffs and a growing pessimism about the job market by consumers. A major report on manufacturing showed slowing employment growth and shrinking production and new orders.

But other indicators suggested that fears of recession have outstripped reality. Consumer confidence dropped sharply and pending home sales dipped, but in July retail sales increased and orders for durable goods — expensive items often purchased on credit — were up 4 percent. A report on chain-store sales indicated modest back-to-school shopping, somewhat slowed by Hurricane Irene.

Article source: http://feeds.nytimes.com/click.phdo?i=47f07393619c280086b412269a127437

Filed Under: Business News Tagged With: stimulus, unemployment rate, wall street stocks

Stocks Lose Momentum

August 24, 2011 by NewsMaker Leave a Comment

Stock indexes had powered ahead on Tuesday, the second consecutive day of gains, as investors scooped up stocks that had become cheaper after recent sell-offs.

But the markets were not as certain on Wednesday, wavering between gains and losses. Gold fell, the benchmark Treasury yield rose slightly to 2.203 percent and financial stocks declined.

A government report Wednesday that showed that durable goods orders rose in July provided little stability. Analysts noted that, considering recent talk of another recession, it would take more than one economic data point to convince investors that the economy was on solid footing.

“Any one report is not going to have real significant impact because the market is looking for a breadth of data,” said Stuart Freeman, chief equity strategist for Wells Fargo Advisors.

Some investors were betting that weak economic data would support the likelihood of further stimulus from the Federal Reserve, whose chairman, Ben S. Bernanke, will speak at the Fed’s symposium at Jackson Hole, Wyo., on Friday. Mr. Bernanke had outlined stimulus options at the same meeting in 2010 in response to the slowdown of the economy.

While those expectations had driven some of the gains on Tuesday, there was little follow-through on Wednesday.

In early afternoon trading, the Standard Poor’s 500-stock index was down 0.2 percent and the Dow Jones industrial average was down 0.2 percent. The Nasdaq composite index was down 0.6 percent.

“There is some trading going on with the expectation that the Fed is going to make some comments that they have got something up their sleeve,” Mr. Freeman said. “I think we are going to be in this volatile sideways moving market” for some time.

Gold, which sagged sharply on Tuesday only to rise in Asian trading, fell further on the Comex exchange. It was down $69.70, or 3.8 percent, to $1,788.60 an ounce. The metal had been used as a safe haven in recent market volatility and risen to record nominal highs.

Jeffrey Nichols, the managing director of the American Precious Metals Advisors, said that the run-up in gold had been “so large in magnitude and fast” that “to have a significant correction here really makes sense.”

“Some of the rally was a function of speculative demand by short-term-oriented institutional traders,” he said, adding that the consequence would be for them to sell, take profits and move on to other instruments. But he said that the long-term economic outlook was basically unchanged.

The Commerce Department reported earlier that overall orders for durable goods rose 4 percent last month, the biggest increase since March. But a category that tracks business investment plans fell 1.5 percent, the biggest drop in six months.

Abigail Huffman, director of research at Russell Investments, said that some of Wednesday’s early gains may have been a result of the durable goods numbers and the market’s momentum from the previous day.

“It is definitely a wait-and-see feeling preceding the Fed meeting,” she said.

Stocks in Europe rose for a third day, after declines in Asian markets, as some investors bet that the Federal Reserve would act soon to strengthen the economy and that the sharp stock market drops earlier this month were overdone.

Adrian Darley, head of European equities at Ignis Asset Management, said that even though some investments now looked cheap, investors lacked confidence.

“There are remaining concerns about global economic growth slowing down,” Mr. Darley said. “The question is whether the sell-off has gone too far. Companies recognize that there is a lot of value out there but investors don’t have a lot of confidence.”

The Euro Stoxx 50 index closed 1.8 percent higher in Europe, while Germany’s DAX index increased 2.7 percent and France’s CAC 40 index rose 1.8 percent. Stock markets in Asia slipped as investors took in the downgrade by Moody’s Investors Service of its rating on Japanese government debt and shrugged off both Tuesday’s surge on Wall Street and fresh efforts by the Japanese government to prop up feeble economic growth.

The Nikkei 225-stock index rose in early trading, but quickly gave up those gains to end the day down 1.1 percent at 8,629.61 points. Similarly, the yen remained persistently strong in the international currency markets, hovering at about 76.60 yen per U.S. dollar.

Moody’s decision to lower its rating of Japan by one notch came as little surprise, as Standard Poor’s had announced a similar downgrade in January and the economic and political challenges facing the country are well known.

Elsewhere in the Asia-Pacific region, the markets slipped, ignoring the firm rally in the American markets during the previous day. Analysts cautioned that the lingering uncertainties about the economy in the United States and debt woes in Europe remained in place and were likely to produce more volatility in coming months.

The key index in South Korea closed down 1.2 percent, the Taiex in Taiwan fell 0.6 percent, and the S. P./ASX 200 in Australia finished 0.1 percent lower.

In Hong Kong, the Hang Seng index was 1 percent lower by mid-afternoon, the Straits Times index in Singapore fell 0.4 percent, and in India, the Sensex was down 0.8 percent by the afternoon.

Julia Werdigier reported from London and Bettina Wassener contributed reporting from Hong Kong.

Article source: http://www.nytimes.com/2011/08/25/business/daily-stock-market-activity.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: durable goods orders, nasdaq composite index, stimulus

You’re the Boss: Big Banks Shrinking as S.B.A. Lenders

August 10, 2011 by NewsMaker Leave a Comment

The Agenda

How small-business issues are shaping politics and policy.

The Small Business Administration’s guaranteed business loan program is back. Nudged by stimulus provisions that reduced fees and increased guarantees, American banks made a record amount of S.B.A.-backed loans in 2010 (measured in dollars), reversing a demoralizing four-year slide. But there’s something noteworthy about who was doing that lending: while banks as a whole loaned more government-backed money than ever, the biggest banks loaned less.

The 25 American banks with the most deposits in 2010 underwrote $3.6 billion in S.B.A. general business, or 7(a), loans. That is just more than 20 percent of all 7(a) loans approved that year, down nearly a third from the share these same banks loaned in 2006. The decline cannot be tied to a decline in deposits. In that same period, these banks grew to control $5.8 trillion in deposits, 61 percent of all bank deposits in 2010.

In other words, in 2010 the 25 biggest banks held 32 percent more in deposits than those banks did in 2006 — but approved 30 percent less in S.B.A. loans.* The decline appears to be related to losses the banks suffered when borrowers defaulted on one type of 7(a) loan during the crisis, and perhaps as well to the difficulty large banks have in making profits on smaller loans in general.

Steve Smits, the S.B.A. associate administrator who supervises lending programs, said that one reason big banks lost 7(a) market share was that during the recession, many community banks joined — or rejoined after a long absence — the S.B.A. program as a way to keep lending despite their weakened balance sheets. This was possible because S.B.A. loans permit a bank to keep less cash in reserve and can be sold on a secondary market to generate still more cash for the bank. “We definitely saw north of a thousand lending partners use our programs for the first time in years during the depths of the recession, and many of those institutions were the small community banks,” Mr. Smits said.

But the big banks didn’t just lose share of total S.B.A. lending; their dollar volume fell absolutely as well — 15 percent from 2006. Bank of America, the largest bank and one of the top 7(a) lenders in 2006, saw its loan volume plummet 89 percent by 2010. Loans at PNC Bank and RBS Citizens (which operates as Citizens Bank in the Northeast and Charter One in the Midwest) fell by 82 and 83 percent, respectively. At Capital One, which had moved aggressively into the S.B.A. market only a few years earlier, 7(a) lending has almost completely collapsed: the bank, which approved $228 million worth of 7(a) loans in 2006, green-lighted only $551,000 in 2010.

The figures here (and in the chart below) represent loan amounts approved by either the bank or the S.B.A. — a higher amount than the money actually distributed to borrowers, since some loans are canceled before they are issued. They were compiled by the loan brokerage firm MultiFunding, using deposit data from the Federal Deposit Insurance Corporation and loan information from the S.B.A. (which was provided by Coleman Publishing). The loan figures are for calendar years, though the S.B.A. itself tracks its lending by the government’s fiscal year, which begins Oct. 1 and ends Sept. 30.

“I did expect to find that the big banks currently are making a lot less loans to small businesses than smaller banks are,” said Ami Kassar, who is chief executive of MultiFunding. “I didn’t expect to find that the big banks commitment had decreased.”

The big banks simply are not well suited to make S.B.A loans in particular, or small-business loans in general, said Barry Sloane, chairman and chief executive of Newtek Business Services, a large 7(a) lender that is not a bank. “The larger institutions have a much higher cost structure, and they have a harder time making a million-dollar loan profitable,” Mr. Sloane said. “Larger banks, when they lend, want to lend more money, to a larger borrower, and they want to secure a depository arrangement. S.B.A. loans don’t necessarily go along with a significant amount of deposits. And they are much more labor-intensive than a conventional loan.”

To induce large banks to make S.B.A. loans, the agency developed a 7(a) program especially for them, S.B.A. Express. This program lets lenders use their own application forms and credit-scoring models to make smaller loans, which they can approve themselves, and banks don’t have to take any more collateral than their regular loans require. It allows those banks to incorporate government-guaranteed loans seamlessly into their lending operations — borrowers who don’t qualify for a bank’s conventional loan can automatically be considered for an S.B.A.-backed loan without having to start the paperwork all over again. Because they take on more responsibility for underwriting the loan, the banks must also shoulder more of the risk, in the form of a lower guarantee.

By 2007, S.B.A. Express had grown into an important component of the 7(a) program, constituting almost a quarter of the loan volume and more than two-thirds of the total loan numbers. But big banks put the brakes on S.B.A. Express lending in late 2007, a year before the full-on credit crisis that saw most lending come to a halt. At the time, Mr. Smits’s predecessor at the S.B.A. explained that banks were seeing higher defaults than they originally anticipated, so they were raising their credit standards. Since then, many appear to have in fact pulled out of the program. Bank of America, RBS Citizens, and Capital One — the three banks showing the sharpest drop in S.B.A. lending — had all specialized in S.B.A. Express loans. Mr. Sloane and Tony Wilkinson, president of the National Association of Government Guaranteed Lenders, both attribute the decline in big-bank 7(a) lending to big losses in Express lending.

The S.B.A.’s Mr. Smits said he was not able to explain the decline in S.B.A. lending among big banks. “I think you have to look at each lender on its own and see whether they’ve actually had a drop in activities to small business lending in general, or whether it was just S.B.A. in specific,” he said. “You have to look at what their model is, and what their average loan sizes are.”

The banks contacted by The Agenda were for the most part reluctant to say much about their S.B.A. lending. All insisted that S.B.A. loans are just one of many ways they provide credit to small businesses and that they are broadly making more credit available to those companies.

Robb Hilson, an executive in Bank of America’s Global Commercial Banking division, was the most explicit. “Admittedly, we made mistakes, and we ended up losing a lot of money, even on the S.B.A.-guaranteed portfolio, because we were too aggressive at a time where it was not appropriate,” he said. “We were looking at borrowers who at the end of the day unfortunately in too many cases did not have the ability to repay the loan.”

Several years ago Bank of America suspended its traditional 7(a) program, with the higher guarantees and additional paperwork, because “we thought it wasn’t customer-friendly,” said Mr Hilson. Last year the bank reintroduced it, and Mr. Hilson vowed that the bank would rebuild — carefully — its Express program. And he added that Bank of America remained a leading lender in another popular S.B.A. program, which guarantees loans made by nonprofit community development companies that partner with banks.

In an e-mail, a PNC spokesman, Fred Solomon, attributed some of that institution’s lending decline in 2009 and 2010 to its efforts to combine with National City Bank, which PNC bought in 2008. But, he added, “other factors do play a role, including our determination not to rely on the S.B.A.’s guarantee when qualifying potential borrowers.” A spokesman for Capital One, Steve Schooff, said in an e-mail message, “We are reevaluating our strategy and opportunities in the current environment relative to S.B.A. loans to determine the best approach.”

Mr. Kassar, for his part, acknowledged the limitations of his analysis of which banks are supporting small businesses. “I don’t think the S.B.A. is the only indicator, or a perfect indicator,” he said. Still, he added, “it does seem like a reasonable indicator of Main Street lending.”

Not all of the big banks have struggled with S.B.A. lending. Despite the overall downward trend, several actually made more 7(a) loans over this time period. SunTrust posted the biggest growth: through 2008, its 7(a) lending hovered around $34 million. In 2009, it grew to $44 million — and then soared to $155 million in 2010. SunTrust has gone from being purely an Express lender to an S.B.A. “generalist,” said Jeff Nager, a SunTrust senior vice president and its S.B.A. Division Executive. “We have made it a focus of the bank.”

Mr. Nager acknowledged that SunTrust’s S.B.A. lending effort was buoyed by the generous government incentives established by the 2009 Recovery Act. “It didn’t change our desire to play or not play, but it stimulated a lot of knowledge in the S.B.A.,” he said. “The borrowers and the clients learned a lot more about the S.B.A. in a short amount of time because of the stimulus. It became a more prevalent part of the discussion in the market place.”

The stimulus provisions have since expired, but Mr. Nager predicted further growth for S.B.A. lending at his institution.

*Eight of the top 25 deposit-holding banks did not participate in the 7(a) program at all between 2006 and 2010; these banks are chiefly credit card lenders or investment managers.

Article source: http://feeds.nytimes.com/click.phdo?i=0e6e9bd89b576c551852643c94f137dc

Filed Under: Small Business Tagged With: community banks, stimulus, trillion

Most at Fed Want Rate Increases Before Asset Sales

May 18, 2011 by NewsMaker Leave a Comment

During an extensive discussion of how the central bank might pull back its massive support for the world’s largest economy, officials agreed they would eventually shrink the Fed’s much expanded portfolio over the medium term, and that getting rid of mortgage-related debt would be a priority.

“A majority of participants preferred that sales of agency securities come after the first increase in the FOMC’s target for short-term interest rates,” the Fed said, referring to the Federal Open Market Committee, its policy-making panel.

“And many of those participants also expressed a preference that the sales proceed relatively gradually,” returning Fed holdings to all Treasury securities “over perhaps five years,” the minutes said.

Discussion of the removal of monetary stimulus should not be seen as an indication the Fed is ready to start down that road any time soon, policy makers said.

Article source: http://feeds.nytimes.com/click.phdo?i=9c9a937cf8a1a6cebf304f649a18ef0e

Filed Under: Business News Tagged With: massive support, stimulus, term interest

Filed Under: Economy News Tagged With: karl smith, matthew yglesias, stimulus