January Unemployment Numbers Released
On Friday, the U.S. Department of Labor released its monthly report showing that the unemployment rate unexpectedly declined in January to 9.7% from an unrevised 10% in December. However, nonfarm payrolls fell by 20,000 compared with a revised 150,000 decline in December. The two statistics are generated by different surveys, which explains how the unemployment rate improved despite a net loss of jobs. Jobs numbers are generated by surveying employers, while the unemployment rate is derived from a household survey.
Senate Financial Regulatory Bill
Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL) have reached an impasse during their negotiations over the Senate’s financial regulatory reform bill. Dodd and Shelby conducted a meeting Thursday that they had hoped could result in progress toward releasing a bipartisan bill. The primary point of contention between Dodd and Shelby continues to be over a possible new consumer regulatory agency. Dodd announced on Friday that he is forging ahead without Shelby and will release a draft bill later this month with the hope of gaining Republican support later in the process.
Volcker Testifies Before Senate Banking Committee
On Tuesday, White House Economic Advisor Paul Volcker testified before the Senate Banking Committee regarding his plan to decouple what he calls “proprietary and speculative activities” from traditional banking activities. During his testimony, Volcker stated “hedge funds, private equity funds, and trading activities unrelated to customer needs and continuing banking relationships should stand on their own.” During the hearing Chairman Dodd expressed frustration about the timeliness of Volcker’s proposal in relation to the Committee’s work on the legislation. Following the hearing, sources indicated that Dodd is likely to drop or change many of the recommendations in the proposed Volcker rule.
Regulators Issue Statement on Lending to Creditworthy Small Businesses
On February 5, 2010, the federal banking regulators and the Conference of State Bank Supervisors issued an Interagency Statement on the Credit Needs of Creditworthy Small Business Borrowers. The Statement builds upon principles set forth in the October 2009 Policy Statement on Prudent Commercial Real Estate Loan Workouts. After noting the overall decline in loans to small businesses and the reasons for that decline the regulators suggested that lenders may have become overly cautious with respect to small business lending. They encourage lenders to engage in prudent small business lending and that that examiners will not criticize lenders for working in prudent and constructive manner with small businesses.
The decline in small business lending has many reasons, not the least of which is that loan demand is actually down. Lenders are also naturally cautious of lending to those businesses that are reliant solely on cash flow that has slowed due to the slowdown in consumer spending and the decline ion the personal wealth of the owners of the businesses. Despite the assertions to the contrary by the regulators, lenders are concerned that there is a disconnect between statements from Washington, DC and what actually happens in the field when examiners are onsite at financial institutions. Our experience seems to show that local federal regulators do not see any upside in being flexible when faced with making decisions about how to rate credits. Lenders are therefore naturally reluctant to maker decisions based on guidance until they see it actually implemented on the ground.