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Op/ed: ­California banks are committed to supporting the credit needs of Golden State businesses


By Rodney Brown on March 8, 2013

It has been more than four years since the onset of the Great Recession, and during the past few years our country and the state of California have been slowly progressing down the road to economic recovery. As the economy continues to improve and confidence rises, California banks remain poised to meet the credit needs of all of our business customers — from the very large employers to small-business owners. The bottom line is: California banks are in business to provide credit and are eager to make loans to qualified borrowers.

During the past several months, I have heard the anecdotes and seen the headlines proclaiming that banks are not adequately meeting credit demands. However, the facts simply do not support those assertions.
According to the Federal Deposit Insurance Corp.’s Quarterly Banking Profile for the third quarter of 2012, the most recent data currently available, lending by banks headquartered in California has increased year-over-year.

California total loans and leases are up from $311 billion in 2009 to $326 billion through September of last year.

Meanwhile, the number of traditional banks declined during those years going from 310 in 2009 to 243 in 2012. This signals that despite consolidation within the industry, those remaining institutions are growing their loan portfolios.

The above figures also do not account for lending made by traditional banks doing business in the state but headquartered outside of California, such as Bank of America, Citibank, J.P. Morgan Chase and U.S. Bank, and therefore paint a conservative picture of the total level of lending in California.

It is important to understand banks are highly motivated to make loans since they are the earning assets which generate revenue to pay our depositors, cover our overhead and deliver a return to our shareholders. Extending credit is fundamental to the business of banking.

Additionally, the January 2013 Federal Reserve Board Senior Loan Officer Opinion Survey on Bank Lending Practices reports that banks have eased their underwriting standards across all major loan categories, and demand for business loans, prime residential mortgages and auto loans has strengthened.

Specific to commercial loans, respondents indicated that these lending standards have eased for firms of all sizes and that there is more aggressive competition for making loans. The same survey also indicated easing commercial real estate loan standards with an increasing demand.

A January 2013 report by the National Federation of Independent Businesses cites that only 1 percent of respondents indicated that financing was their top business problem. What was the top problem? Twenty-three percent cited taxes, 19 percent cited weak sales and 21 percent cited regulations and red tape.

Undoubtedly, there are accounts from borrowers, often small-business owners, who have experienced difficulty accessing credit. But we cannot simply conclude that because a particular borrower may have had difficulty obtaining a loan that banks are disinterested in lending. A deeper look into a particular borrower’s creditworthiness must be undertaken to understand their ineligibility. The credit characteristics of the borrower must be understood, including the collateral underlying the loan and the ability to demonstrate the cash flow to repay the loan.

And even though a business may be unable to secure a loan from a traditional bank, banks commonly work with non-depository lenders and various state and federal programs, including the federal Small Business Administration lending program, California Capital Access Program and the Small Business Loan Guarantee Program to help businesses obtain credit.

Small businesses are the lifeblood of our economy. They represent 99.9 percent of the nation’s 27.9 million businesses, employ half of all private sector employees and pay 42.9 percent of the nation’s total private payroll. Promoting a healthy business environment that supports business from the very large to the very small in California, is critical to our continuing economic recovery.

California bankers are dedicated to helping our state’s businesses expand and prosper, create jobs and spur economic growth. It’s a partnership that works for banks, business owners and our communities.

• Rodney K. Brown, a Santa Barbara resident, is president and CEO of the California Bankers Association. Established more than 121 years ago, CBA is one of the largest state banking trade associations in the country and represents the majority of California’s commercial, industrial and community banks and savings associations.