Obama pledges to 'cut red tape' to help small banks

WASHINGTON — Meeting with leaders of a dozen small banks at the White House on Tuesday, President Barack Obama said those institutions largely were not to blame for the financial crisis, and promised to help cut red tape so they could increase lending to small businesses.

"I think it's fair to say that most of these community banks were not engaged in some of the hugely risky activities that helped to precipitate the financial crisis," Obama said at the end of the meeting. "At the same time, they continue to try to do their best in their local and regional markets to make sure that businesses who are now being affected by the overall recession are able to pick themselves back up."

Obama had met with several CEOs of large banks on Dec. 14 and urged them to lend money to small businesses to help create jobs.

But most lending to those businesses is done by the thousands of small banks, which have cut back on making loans as they struggle with bad commercial real estate mortgages and other fallout from the financial crisis and recession.

"In some ways, the pendulum may have swung too far in the direction of not lending, after a decade in which it had gone way too far in the direction of getting money out the door, no matter the risk," Obama said. "If we can get that balance right ... there are businesses and communities out there that are ready to grow again."

The bankers complained that one reason they were not lending more was because of tougher constraints by federal banking regulators, which have been pressing banks to hold on to more capital to cover potential losses. Obama, noting that the regulators are independent, said his administration was looking at ways to "cut some of the red tape."

Edward Yingling, president of the American Bankers Association, which represents small and large banks, said loan demand was down in some areas as small businesses looked to save money. He also echoed concerns about tougher regulatory standards.

"In many cases, bank examiners are exercising more caution when reviewing bank lending portfolios. This is understandable given the recent financial crisis. Yet the bank regulators need to be prudent without being so punitive that they choke off lending in communities across the country," said Yingling, who did not attend the meeting.

"The president's message today was that they're listening," said James MacPhee, chief executive of Kalamazoo County State Bank in Michigan. "They know that the community banks of this nation did not create this train wreck."

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