NEW YORK – The Federal Reserve views stress assessments as a tool to restore confidence in the banking system’s stability, and restoring credit flow “remains a central objective of the Federal Reserve,” Fed Chairman Ben S. Bernanke said today.
Speaking at the Federal Reserve Bank of Chicago’s annual conference, Bernanke said the Fed has been careful to “ensure that our supervisory actions do not inadvertently impede sound lending. Businesses need access to credit to maintain or expand their payrolls and make productive investments. And banks need to make sound loans to preserve their earnings stream, absorb credit losses, and support capital growth, as necessary.”
Feedback, he said, helps the Fed understand what is happening “in the banks we supervise and in the communities they serve.”
The Fed is “developing a number of sources of information to help us evaluate whether banks are achieving the right balance between sound lending and necessary prudence. For example, examiners are collecting information on banks' workout practices and loan restructurings, which will act as a baseline for assessing the effectiveness of supervisory guidance. In addition, we have asked banks for more frequent and detailed information on smaller business loans, and we have added questions to our own Senior Loan Officer Opinion Survey on Bank Lending Practices to assess changes in lending to small businesses, augmenting questions already in the survey,” he said.
Despite the fact that credit conditions remain tight, Bernanke said he sees “some reasons for optimism. Economic activity has continued to strengthen. And senior loan officers tell us that, at least outside of commercial real estate, they anticipate a modest reduction in their troubled loans over the coming year. As a result, bank attitudes toward lending may be shifting. In the Senior Loan Officer Opinion Survey conducted in April, most banks reported unchanged lending standards over the previous three months. For the first time since the crisis began in the summer of 2007, banks reported no net tightening of lending standards for small businesses.”
