In White House meeting, Obama calls on banks to increase lending

By Binyamin Appelbaum and Michael A. Fletcher
Washington Post Staff Writer
Tuesday, December 15, 2009; A01

President Obama exhorted the nation's biggest banks on Monday to make "extraordinary" efforts to increase lending, even as some of those firms are racing to distance themselves from government control.

The nation's most powerful bankers sat in the Roosevelt Room at the White House and nodded as the president spoke, but some executives and industry officials said afterward that increasing lending is largely beyond their ability.

Meanwhile, Citigroup and Wells Fargo announced plans Monday to spend billions of dollars -- not on lending, but to repay federal aid. Citigroup chief executive Vikram Pandit missed the White House meeting to rally investor support.

Bank executives say they itch to make profitable loans, as many as possible, but are struggling to find qualified borrowers. They also say that the administration is asking for increased lending even as it pursues financial reforms that will limit the ability of banks to make loans.

Some note that a recession caused by an orgy of lending must be solved in part through greater restraint.

Obama has come under increasing pressure to demonstrate his concern for the plight of Americans caught in a rising tide of joblessness, even as the larger economy appears headed to recovery. The White House portrayed Monday's meeting as a chance for the president to channel the anger of Americans who think federal programs intended to revive the broader economy have succeeded only in restoring Wall Street's profitability.

"America's banks received extraordinary assistance from American taxpayers to rebuild their industry," the president said after the meeting. "And now that they're back on their feet, we expect an extraordinary commitment from them to help rebuild our economy."

Obama added that he expects not just effort but "results."

Some administration officials privately conceded that borrowing always declines during recessions, and that they are struggling to find effective ways of spurring new lending. Furthermore, the administration's options continued to be constrained by the belief of many officials that meddling in the details of banking is counterproductive.

The administration also is surrendering a measure of leverage over the industry as banks repay federal aid provided under the Troubled Assets Relief Program -- although officials are eager to shed the political baggage of aiding big Wall Street firms. With the announcements Monday by Citigroup and Wells Fargo that they would repay federal aid, all of the nine major banks that got money late last year will be on track to pay it back.

As a result, while the White House has raised the temperature of its rhetoric in recent weeks, policy measures have not followed.

Some activists are calling on the president to do more. Just after leaving an Atlanta meeting Monday with ministers and others, some of whom are facing foreclosure on their churches and homes, the Rev. Jesse Jackson called on Obama to use federal fair-lending laws to force the banks to help struggling communities.

"Banks got federal money at zero interest, but homeowners and churches are paying pre-TARP prices for their loans," Jackson said. "The banking system must be made accountable. The attorney general should have been in that meeting."

The Congressional Black Caucus and other Democrats, who are concerned that administration efforts to slow foreclosures have come nowhere near meeting their stated goals, have also been pressing for additional steps to help distressed homeowners.

The banking industry has reduced lending for five consecutive quarters, even as it has regained profitability thanks to vast public aid. The amount of money on loan from banks fell by about $600 billion, or 7.2 percent, from September 2008 to September 2009, according to the Federal Deposit Insurance Corp.

The White House initially portrayed the meeting with bankers as an opportunity to discuss strategies for increasing lending. But the president set a sterner tone over the weekend, telling the CBS show "60 Minutes": "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 more temperate, saying that he did not intend to "vilify" any company or industry and that he appreciated existing efforts to increase lending, such as reviewing rejected applications to see whether loans can be approved. The president suggested Monday that banks should review applications three and four times if necessary.

Bankers also emerged from the meeting in a conciliatory mood, saying they share the administration's goals.

"Every bank in that room talked about adding many, many small-business originators and setting very aggressive goals for small-business lending next year," said Richard Davis, chief executive of US Bancorp.

Bank of America plans to increase small-business lending by $5 billion next year. J.P. Morgan Chase has committed to an increase of $4 billion.

"This is simply what a bank should do," J.P. Morgan chief executive Jamie Dimon said in a statement released before the meeting.

This is the second time the president has convened bank executives to urge increased lending. The first meeting, in March, did little to slow the slide. The president said Monday that he continues to get "too many letters from small businesses who explain that they are creditworthy and banks that they've had a long-term relationship with are still having problems giving them loans." But the White House on Monday defended the value of the rhetoric.

"I think that the bully pulpit can be a powerful thing," said press secretary Robert Gibbs.

Obama said he also discussed the need for financial reform, urging the bank executives not to lobby against proposals such as the creation of an agency to protect borrowers from lending abuses. And the president said he once again urged moderation in executive compensation.

"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 afterward. "I have no intention of letting their lobbyists thwart reforms."

Bank executives, however, say that they strongly favor reform -- they just differ with the administration about some of the particulars.

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 Citigroup's Richard Parsons participated in the meeting by telephone because the flight all three had planned to take from New York to Washington was delayed by fog.

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