Wall Street Won’t Even Make Federally Guaranteed Business Loans
April 13, 2020 (EIRNS)—President Donald Trump should take a close look at what he called “the brilliant minds on Wall Street” who were going to use the CARES Act to save American businesses. The big Wall Street banks—unlike the American community banks—are refusing to make loans to small businesses hit by the coronavirus economic crisis, even though those loans are guaranteed by the Treasury and are going to be 95% bought by the Federal Reserve.
The approval percentage for small business loan applications at big banks (those with more than $100 billion in assets) dropped sharply from 28.3% in February—already low enough—to just 15.4% in March. The approval rate by credit unions was 23.2% in March (also a significant drop), and by community banks, 38.9%. This from Biz2Credit Small Business Lending Index, whose CEO, Rohit Ahora, called the Wall Street banks’ performance “a stunning decline.” He continued, “We have already seen that community banks made such a strong showing on the first day of the CARES Act PPP [Payroll Protection Program] lending program, while some big banks ... have already reached their self-imposed lending limits.”
According to American Banker Monday, community banks are working with the Federal Reserve to keep lending beyond their limits, which many reached in the first two days of applications. They are paying 0.35% to the Fed to assume the loan, on which they are charging 1%; but in addition, the Fed is exempting these small business loans from the banks’ Tier 1 capital requirement.
Wall Street is different. Bank of America is making small business loans only to its pre-existing borrowers, thus effectively replacing their uninsured loans with Federally guaranteed loans. It won’t even lend to small business depositors at BOA that haven’t borrowed from it, giving its game away. All the big banks say they’re “still trying to figure out” how they will make the small business loans, trying to get the Fed to take 100%, not 95%, of the loan. And, of course, Wall Street’s bank traders are front-running the Fed’s purchases of everything from junk bonds to bond ETFs on stock markets—so much more money to be made that way.