Bank Failures Threaten Small-Business Lending


The U.S. Treasury Department is concerned the steady pace of bank failures could keep many small businesses from gaining access to new credit as the economy rebounds and companies seek to expand.

Assistant Treasury Secretary Alan Krueger said small and medium bank failures are disrupting long-standing business relationships that drive lending to small businesses.

We’ve been concerned that small businesses, which are particularly dependent on bank financing because they typically don’t access corporate bond markets, will face and have been facing difficulty getting credit,” Treasury’s chief economist said.

Since the beginning of 2008, 192 banks have failed, with 27 coming so far this year. Total lending by U.S. banks fell 7.4%, the steepest drop since 1942.

According to Raj Date, executive director of Cambridge Winter Center for Financial Institutions Policy, there will be a lending shortfall for small businesses of as much as $250 billion to $500 billion as the economy recovers.

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