Jon D. Greenlee, Associate Director, Division of Banking Supervision and Regulation addressed the Subcommittee on Oversight and Investigations, Committee on Financial Services, U.S. House Of Representatives in Michigan on December 1st, 2009 regarding the current banking system, its underwriting process, the credit available to small businesses, and the overall credit situation. He also touched upon commercial real estate and the availability of credit to businesses and what the federal government is doing to help prop up the banking system.
The Federal Reserve Commission is responsible for insuring and enforcing regulations in the United States banking system. Starting in 2007, the banking system entered into difficult financial times, and in 2008, the increasing global economic recession has caused immense strain on the banking systems, and many banks have suffered great losses, and have many have failed.
While there has been economic growth in the third quarter as consumers have begun to spend and there has been an increase in residential real estate, unemployment has risen to 10.2%. There is an increase in delinquency on residential and commercial real estate loans, and an increase in loan defaults from small businesses.
Small businesses tend to be more effected by these difficult economic times and they rely on banks for 90% of their funding while large businesses only rely on banks for 30% of their financing. 27 million small businesses employ about half the workforce in America, and combined they owe over $1 trillion. The availability and demand for bank loans is down as banks continue to tighten their lending. Housing adjustments suggest that we can expect continued foreclosures and mortgage loss are expected to remain high. Banks continue to face difficulties as the value of commercial properties has declined.
The associate director concluded that the current economic environment remains under stress and it will take time before the financial markets to fully recover.
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