Friday, January 27, 2012

Bailouts to Banks do not help small Businesses

During the financial crisis, policymakers put capital into banks and increased loan guarantees. However, these efforts were not very effective at encouraging lending to small businesses, the report shows. Banks' goals are very different from those of the federal government: While policymakers want to keep credit flowing, bank executives want to shore up their companies' financial strengths, which may lead them to curtail lending. This difference meant that during the financial crisis, some banks simply refused the additional capital the government offered them while other banks took the money but didn't increase lending. To make sure that banks keep credit to small businesses flowing, policymakers need to require financial institutions that are cutting back on small business lending to take government money and use it to maintain their loans to those companies.

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