Zywicki in Washington Times: Bureaucrats and Politicians Impediments to Lending
Credit conditions remain tight despite calls for banks to increase lending, and Professor Todd Zywicki points to the actions of politicians and bureaucrats as the causal factors.
"Regulations that interfere with the ability to price risk accurately thus inevitably produce efforts to reduce risk exposure by curtailing lending," says Zywicki. Today's climate of regulatory uncertainty makes it impossible for borrowers and lenders to price the risks associated with the various new policies and proposals that are reshaping the economy, says Zywicki.
In addition, Zywicki believes bank examiners have been excessively cautious in valuing bank assets, thereby demanding an increase in reserves and a shrinkage in lending. "Bureaucrats face well-known incentive problems that lead them to be more risk averse than is socially optimal," he says.
ZYWICKI: Why aren't banks lending? Washington Times, June 8, 2010. By Todd J. Zywicki.
"Despite constant urging by Washington for banks to increase their lending, credit conditions remain tight. Small-business lending continues to lag, and credit card issuers have slashed credit lines and canceled thousands of accounts. Just before Memorial Day, the Obama administration unveiled its latest effort to jump-start lending, a new Small Business Lending Fund (SBLF), which will make available $30 billion to community banks to promote small-business lending. The proposal already has cleared the House Financial Services Committee.
"But is there any reason to believe that this modest investment will do what the hundreds of billions of Troubled Asset Relief Program (TARP) dollars failed to do - namely, encourage banks to start lending? Not likely. As with previous efforts, the new fund fails to address the most important reason banks aren't lending: Washington bureaucrats and politicians are making it impossible for them do so."