by qrono
30. June 2010 08:57
While Washington moves ahead on reforming the nation's financial system, bank lending is yet to catch up. Many banks have been reluctant to make new loans in recent months, in part, because of uncertainty about just how harshly lawmakers would crack down on the industry. But last week's ironing out of a Wall Street reform bill may do little to revive the flow of credit. "If anything, this legislation could reduce credit outstanding - not increase it," said Gerard Cassidy, managing director of bank equity research at RBC Capital Markets. As part of the proposed new law, banks would also be banned from making so-called 'liar loans'. Instead, lenders would be required to verify both a borrower's income and their ability to make payments. The reform bill also leaves many other questions unanswered. Bankers, particularly those at the nation's top financial institutions, are still awaiting details on just how much capital their firms are required to hold.
Small banks, on the other hand, continue to face tough oversight from regulators about both the loans on their books, and in some instances, the types of loans they are making. But these aren't the only reasons why banks may still be reluctant to lend more. Troubling economic numbers like last week's sharp decline in new home sales may keep bankers nervous as they try to manage their current loan losses. "There is such uncertainty about the economic outlook that individuals and corporations are going to try and paid down debt or sit on whatever cash they have," said Richard Staite, a London-based banking analyst with Atlantic Equities, which tracks several large U.S. banks.
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