Obama pushes bankers to increase lending to boost economy

Economists who believe the government should actively manage the economy to buffer the depth and length of economic downturns say that expansionary monetary policy is appropriate for combating a recession. This is accomplished when commercial banks increase the amount of money created when they increase their lending. More loans encourage increased spending which is turn increases the aggregate demand for newly produced goods and services and boosts employment as businesses increase output.

U.S. President Barack Obama chastised commercial banks for failing to lend sufficient funds to the public despite efforts by the Federal Reserve to lower interest rates and encourage more loans.

In the December 14, 2009 McClatchy article "Obama pushes bankers to increase lending to boost economy," Steven Thomma explains why President Obama wants bankers to increase loans.

WASHINGTON — President Barack Obama gave the nation's top bankers an earful Monday, telling them in no uncertain terms that it's time for them to start lending again to help boost the economy after being bailed out themselves by the nation's taxpayers.

Although aides called the meeting "positive and constructive," there was little doubt that Obama summoned the bankers to the White House for a high-profile dressing down, pitting the power of the presidential bully pulpit against them.

Beyond pressing them to pump more cash into the economy through new loans, he also told them he'll fight them and their lobbyists if they try to block tough new regulation of their industry, and that they need to do more to rein in exorbitant pay.

"My main message in today's meeting was very simple: that America's banks received extraordinary assistance from American taxpayers to rebuild their industry and now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy," the president said after the meeting.

He acknowledged that some of the drop in lending is due to banks and regulators not wanting to repeat the kinds of high-risk loans that helped cause the financial collapse. He also noted that regulators are requiring banks to increase the amount of cash they keep in reserve.

"No one wants banks making the kinds of risky loans that got us into this situation in the first place," he said.

Nonetheless, he pressed them to "explore every responsible way" to boost lending, which has dropped for five consecutive quarters.

When bankers told Obama they were taking a second look at some potential loans to small businesses, he urged them to go farther. "Go back and take a third and fourth look," he said.

Richard Davis , the chairman and CEO of US Bancorp , said outside the White House that bankers weren't hoarding cash just to boost earnings.

The problem, he said, is that many Americans and businesses are less creditworthy than they were before the recession.

"You don't want us to make loans that aren't strong and well suited" to the borrower, he said.

Republicans called it hypocritical for Obama to press bankers to make more loans.

"It's not every day the leader of the free world blames you for a problem and then tells you to do the exact same thing that caused the problem," said Rep. Tom Price , R- Ga. , the chairman of the Republican Study Committee.

Obama also lobbied for his proposed sweeping overhaul of the nation's financial regulations, challenging the bankers to justify their public support for change in light of their intensive lobbying in Congress to defeat his proposals.

"The industry has lobbied vigorously against some of them, some of these reforms on Capitol Hill ," the president said.

"I made very clear that I have no intention of letting their lobbyists thwart reforms necessary to protect the American people. If they wish to fight common-sense consumer protections, that's a fight I'm more than willing to have."

Obama also noted that many banks have shifted from paying bonuses in cash to paying them in stock that's available only after several years. "But," he said, "they certainly could be doing more on this front as well."

The group included:
— Ken Chenault , the president and CEO of American Express .
— Davis of US Bancorp .
— Jamie Dimon , the chairman and CEO of JPMorgan Chase .
— Richard Fairbank , the chairman and CEO of Capital One.
— Bob Kelly , the chairman and CEO of Bank of New York Mellon .
— Ken Lewis , the president and CEO of Bank of America .
— Ron Logue , the chairman and CEO of State Street Bank .
— Gregory Palm , the executive vice president and chief counsel of Goldman Sachs .
— Jim Rohr , the chairman and CEO of PNC.
— John Stumpf , the president and CEO of Wells Fargo .

Some CEOs participated via conference call, unable to attend because of bad weather. They included Lloyd Blankfein , the chairman and CEO of Goldman Sachs , John Mack , the chairman and CEO of Morgan Stanley , and Dick Parsons , the chairman of Citigroup .