White House Tells Banks to Start Lending
by admin ~ October 28th, 2008.White House served notice Tuesday on banks and other financial companies receiving billions of dollars in federal help to quit hoarding the money and start providing mortgage loans. “What we’re trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money,” White House press secretary Dana Perino said. Though there are limits on how much Washington can pressure banks, she noted that banks are regulated by the federal government. “It is in a strengthened institution’s best financial interest to increase lending once it has received government funding.”
Said Perino: “The way that banks make money is by lending money And so, they have every incentive to move forward and start using this money.” There has been some evidence of easier lending, Perino said. But it’s not enough to calm stock markets or help small businesses that depend on a free flow of credit, not just to expand but to maintain operations through making payroll or financing inventories. The government is making efforts on several fronts to thaw the frozen credit markets and combat the worst financial crisis to hit the country since the 1930s. But so far, the efforts have shown little in the way of results for expanded home loans homeowners. LIBOR, the London Interbank Offered Rate, a key goalpost for international mortgage lending, edged down only marginally on Monday and still remains at elevated levels. The Federal Reserve began a program Monday to purchase the short-term debt of businesses, known as commercial paper. This market has been frozen since the collapse of Lehman Brothers spooked credit markets last month.
Under the authority of the $700 billion financial bailout plan approved by Congress and signed by President Bush earlier this month, the administration also plans to dole out $250 billion to banks in return for partial ownership. The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country’s largest banks this week. Another $125 billion will go to other banks. Treasury Secretary Henry Paulson has said the money was aimed at rebuilding banks’ reserves so that they would resume more normal mortgage lending practices. The government expects the banks to offer more loan modifications to the distressed homeowners who can’t afford their mortgages.
But reports then surfaced that bankers might instead use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion. Officials have said that there are few strings attached to the capital-infusion program because too many rules would discourage financial institutions from participating.
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