Is TARP money the answer for small businesses?
NORWICH – The Obama administration’s proposal to recycle the $30 billion left in the Troubled Asset Relief Program into a new Small Business Lending Fund isn’t the answer to promoting economic growth, according to the president of one of the area’s largest community lenders.
“I don’t think it’s quite so simple,” explained Martin Dietrich, who sits at the helm of NBT Bancorp. The Norwich-based bank holding company operates two full-service community banks – PennStar Bank, which has 38 branches in Northeast Pennsylvania, and NBT Bank, which operates more than 85 branches in New York and neighboring Vermont.
The plan, unveiled last week by President Barack Obama, is aimed at encouraging community banks, like those operated by NBT, to increase their lending to small businesses. The hope is that better access to credit will enable the nation’s small businesses to expand and create new jobs.
But according to Dietrich, NBT is already doing its part to service this segment of the market.
“We’ve been incredibly active in providing loans to the business community,” he reported, explaining that NBT’s current lending is “at or near all-time high levels.”
As of year end 2009, the bank holding company’s loans and leases accounted for $3.6 billion of the company’s $5.5 billion in total assets. While this was down $6.5 million from the prior year, Dietrich said it included new business loans in excess of $350 million, and new car loans totalling $275 million.
“We’re a very active lender,” he stated.
Not all banks, however, are in the same position. This, according to Dietrich, is one of the reasons behind the so-called “credit crunch.”
“In general, banks only make money when they make loans,” the bank executive explained. A bank’s ability to lend is tied to its capital, he added, and in the wake of the financial crisis, many lending institutions are not as well capitalized as they were before the recession.
As a result, Dietrich said, some banks are “actively trying to shrink their balance sheets to fit (their) reduced capital.”
At the same time, there is reduced demand on some fronts, something he says is a natural effect of an economic downturn.
“It’s not uncommon for borrowing to be down as businesses and consumers become more conservative,” he explained.
And banks aren’t the only place people turn to for financing purchases.
“A large part of credit to small business are supplied through means other than banks,” Dietrich reported, such as through equipment leases and credit cards. On these, too, many businesses are scaling back.
While the Obama administration may mean well, according to the bank executive their “plan of the week” approach is actually adding to the economic uncertainty.
“It’s hard for businesses and banks to (make decisions) when you don’t know what shoe is going to drop next,” Dietrich said. “It’s hard to look too far in the future.”
It will take time and a rise in consumer confidence before business returns to “more normal patterns,” in his opinion.
As for that $30 billion remaining in TARP, Dietrich said he believed the money would be far better used to reduce the deficit.
The Small Business Lending Fund is one of several proposals Obama has unveiled in an effort to spur economic growth. The plan would require federal legislation in order to be enacted.
“I don’t think it’s quite so simple,” explained Martin Dietrich, who sits at the helm of NBT Bancorp. The Norwich-based bank holding company operates two full-service community banks – PennStar Bank, which has 38 branches in Northeast Pennsylvania, and NBT Bank, which operates more than 85 branches in New York and neighboring Vermont.
The plan, unveiled last week by President Barack Obama, is aimed at encouraging community banks, like those operated by NBT, to increase their lending to small businesses. The hope is that better access to credit will enable the nation’s small businesses to expand and create new jobs.
But according to Dietrich, NBT is already doing its part to service this segment of the market.
“We’ve been incredibly active in providing loans to the business community,” he reported, explaining that NBT’s current lending is “at or near all-time high levels.”
As of year end 2009, the bank holding company’s loans and leases accounted for $3.6 billion of the company’s $5.5 billion in total assets. While this was down $6.5 million from the prior year, Dietrich said it included new business loans in excess of $350 million, and new car loans totalling $275 million.
“We’re a very active lender,” he stated.
Not all banks, however, are in the same position. This, according to Dietrich, is one of the reasons behind the so-called “credit crunch.”
“In general, banks only make money when they make loans,” the bank executive explained. A bank’s ability to lend is tied to its capital, he added, and in the wake of the financial crisis, many lending institutions are not as well capitalized as they were before the recession.
As a result, Dietrich said, some banks are “actively trying to shrink their balance sheets to fit (their) reduced capital.”
At the same time, there is reduced demand on some fronts, something he says is a natural effect of an economic downturn.
“It’s not uncommon for borrowing to be down as businesses and consumers become more conservative,” he explained.
And banks aren’t the only place people turn to for financing purchases.
“A large part of credit to small business are supplied through means other than banks,” Dietrich reported, such as through equipment leases and credit cards. On these, too, many businesses are scaling back.
While the Obama administration may mean well, according to the bank executive their “plan of the week” approach is actually adding to the economic uncertainty.
“It’s hard for businesses and banks to (make decisions) when you don’t know what shoe is going to drop next,” Dietrich said. “It’s hard to look too far in the future.”
It will take time and a rise in consumer confidence before business returns to “more normal patterns,” in his opinion.
As for that $30 billion remaining in TARP, Dietrich said he believed the money would be far better used to reduce the deficit.
The Small Business Lending Fund is one of several proposals Obama has unveiled in an effort to spur economic growth. The plan would require federal legislation in order to be enacted.
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