Retain more capital

 

 

Loan more Spend less

 

I have been hearing for quite a while that banks need to lend more, which was the purpose of the bailouts, but now we are seeing that some of these banks need to retain more capital for hard times. I understand Obama's call to spend less, but that alone isn't going to allow capital increase while lending more, IMO. Is Obama asking the impossible from the banks?

I have been hearing for quite a while that banks need to lend more, which was the purpose of the bailouts, but now we are seeing that some of these banks need to retain more capital for hard times. I understand Obama's call to spend less, but that alone isn't going to allow capital increase while lending more, IMO. Is Obama asking the impossible from the banks?

 

I don't think so. The banks who are in trouble tend more often than not to be the ones who have already lent too much. Ergo, we're not so much asking them to lend more, as we are instead asking those banks in stronger cash/capital positions to do so. I see the requests you reference above as impacting the different banks in different ways. Strong banks should lend more because they can. Weak banks should lend less and instead increase capital because they've lent too much in the past (or made poor lending decisions when they extended credit).

 

If my opinion above is an accurate representation, then I really don't see the problem.