Ely’s concern lies with the question being tossed around Congress - should banks be required to use TARP capital to make more loans?
He says there's widespread confusion about the role capital plays in a bank’s balance sheet. “That confusion is evident in comments such as banks should be forced to lend the TARP monies the government has given them,” he writes.
But banks don’t have to lend TARP money to put it to good use.
According to Ely TARP money on the balance sheet could and should be used in the following three ways:
1) to absorb losses from loans and investments already on its books
2) to acquire banks too weak to remain independent
3) to increase its lending.
He explains all of those things (and not just making loans) will "boost a bank's lending capacity because it enables the bank to safely increase its deposits -- and thus its loans -- without increasing its risk of insolvency.”
And, he also makes the point that people who are good risks can get money. In fact, there's no trouble on that front, whatsoever. Commercial bank lending actually grew $336 billion, or 4.9%, from August to Dec. 24, according to Federal Reserve data.
So what’s the bottom line? “While lending dictates or other restrictions may be tempting, the Obama administration must discourage Congress from imposing them on recipients of TARP investments,” says Ely.
What do you think? Tell us now!
To see our entire interview with Bert Ely please watch the video.
> Banks Don’t Need To Be Forced To Lend
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