FDIC Unhappy With Lending; Will More Access To Credit Help The Economy?

FDIC Chairman Sheila Bair feels that there isn’t enough lending going on and banks are being to tight with their capital. Many feel that banks are being tight with cash due to the amount of defaults from real estate and don’t wish to continually put themselves in a position where they are at risk. Bair says that there could be negative repercussions if credit lines aren’t loosened by banks and that there could be a downturn in the economic progress being made but many banks are reporting that not many people are looking for credit, but simply looking to lower their own debt.

The FDIC is a vital part of the banking industry and had shouldered the weight of numerous failing banks over the past two years. Recently, the FDIC started encouraging banks to hold more assets on hand in case of defaults and financial strains. That practice would provide the bank with its own cushion in case of an emergency and take a great deal of stress off the FDIC. However, now the FDIC is asking banks to lend more then they have been, but is this a good idea?

The FDIC plan to have banks keep their assets higher than potential losses is a fantastic idea because banks are putting their resources on the line rather than working with the idea that the FDIC will save them no matter what. However, the increase in credit lending the FDIC is pushing for seems to be what began the whole downturn in the economy.

Loose lending from banks and other financial institutions essentially caused the collapse in our economy, yet it seems that when things are looking better the FDIC is asking banks to begin lending to a country that is struggling financially. Is credit and the ability for Americans to access credit a key element in recovery at the present time or is the FDIC pushing for action that could lead to another economic downturn?

Also, should banks be lending to people who may be a credit risk? If there are few who are seeking lending from banks, as was reported, then how are banks to appease the FDIC’s request to lend more? A hard lesson was learned when lending became very loose but is now the time to open credit lines again and will it help individuals and businesses get back on their feet?

Bad Credit Bank Lending has been a huge concern for many years and it continues in 2012.  Although the economy has improved drastically it will be interesting to see if some of the banks that offered poor credit loans in the past go back to their old ways in hopes of making a ton of quick money.