By Binyamin Appelbaum
Washington Post Staff Writer
Monday, December 14, 2009 1:37 PM
President Obama reiterated his call Monday for the nation's banks to increase lending, saying that he was getting too many letters from small businesses unable to borrow money.
"America's banks received extraordinary assistance" from the government, Obama said at a press conference following a meeting with the heads of the largest banks. "Now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy."
The White House had initially portrayed the meeting as an opportunity to exchange strategies for increasing lending, but the president set a harsher tone over the weekend, telling the CBS show "60 Minutes" that, "I did not run for office to be helping out a bunch of fat cat bankers on Wall Street."
One day later, the president was slightly more temperate, saying that he did not intend to "vilify" any company or industry and that he appreciated the efforts already being made. But he cautioned that efforts were no longer sufficient. Rather, "we expect some results."
Obama said he also discussed the need for financial reform with the bank executives, urging them not to lobby against proposals such as the creation of a new agency to protect borrowers from lending abuses. And the president said he once again urged moderation in executive compensation.
The guest list for the meeting included the top executives of 12 of the nation's largest banks, but there were three late scratches. Goldman Sachs's Lloyd C. Blankfein, John Mack of Morgan Stanley and Dick Parsons, chairman of Citigroup, participated in the meeting by telephone because the flight all three had planned to take to Washington was delayed by fog.
Parsons himself was a last-minute fill-in for Citigroup chief executive Vikram Pandit, who was occupied by Citigroup's announcement that it would repay $20 billion in federal aid, the first step in weaning itself from the government bailout by the end of 2010. Only one major bank, Wells Fargo, has not yet announced a plan to repay federal aid.
Obama convened a similar meeting with bank executives in March, and the need for a replay highlights the lack of progress in the interim. The banking industry has reduced lending for five consecutive quarters, even as it has regained profitability thanks to vast public aid.
The administration's success in rescuing banks stands in starker contrast every day with the financial problems of many Americans, most of all the lack of new jobs. Democrats made restless by the disparity are mounting pressure on the White House.
Meanwhile, the prospects for financial reform legislation have been clouded by the concerns of Senate Democrats that some proposals would unduly suppress financial innovation and limit economic growth, a case the industry has pressed hard to make.
The president and his advisers have responded in recent days with a burst of heated rhetoric, arguing that the government rescued the banking industry and that banks now are failing to show proper gratitude. The amount of money on loan from banks fell by almost $600 billion, or 7.2 percent, from September 2008 to September 2009, according to the Federal Deposit Insurance Corp. Lending to businesses, excluding construction loans, fell 15 percent.
"We were there for them," Lawrence H. Summers, the president's chief economic advisor, said Sunday on ABC's "This Week." "And the banks need to do everything they can to be sure they're there for customers across this country."
But the reasons for the lending decline are complicated. After years of foolish lending, some banks are holding back because they lack the confidence even to make good loans. But demand for loans also declines in every recession, as people and businesses delay planned purchases. And some banks say that regulators are requiring unnecessary levels of caution after years of lax oversight.
It is not clear what impact Monday's session will have. Bank executives say they already are motivated to make as many profitable loans as possible.
"This is simply what a bank should do," J.P. Morgan Chief Executive Jamie Dimon said in a statement released before the meeting.
The White House also is mad at banks for opposing the president's regulatory reform proposals.
The industry has adopted a low profile during the debate, allowing groups such as the U.S. Chamber of Commerce to run ads and hold news conferences. But outside the limelight it has argued fiercely against elements of the plan, particularly the proposed creation of an agency to protect borrowers from abuse by lenders.
Obama used Monday's meeting to chide the banks for their efforts.
"I made it clear that it is both in the country's interest and ultimately in the financial industry's interest to have updated rules of the road to prevent abuse and excess," Obama said. "I have no intention of letting their lobbyists thwart reforms."
Bank executives, however, say that they strongly favor reform -- they just differ on some of the particulars. Edward L. Yingling, president of the American Bankers Association, noted that on key issues, such as preserving the regulatory responsibilities of the Federal Reserve, large banks have sided with the administration against rival proposals by House and Senate Democrats.
Staff writer David Cho contributed to this report.