A Time to Heal, a Time to Lend

Bank profits continued to grow in the fourth quarter, according to the Federal Deposit Insurance Corp., and the number of past-due loans kept declining.

“Clearly, 2010 was a turnaround year, with four straight quarters of positive earnings,” said FDIC Chairman Sheila Bair today.

That’s good news for banks. Now, Bair said, banks should turn this into good news for businesses by making more loans. “The long-term health of both the industry and our economy will depend on a responsible expansion of bank lending at this pivotal point in the economic recovery,” she said.

FDIC-insured banks reported total profits of nearly $22 billion in the fourth quarter of 2010. That compares with a $1.8 billion loss during the same period in 2009. Profits were up at nearly two thirds of all banks, including most community banks. That’s important for small businesses, since community banks are a key source of lending for them.

Loan balances, however, continued to decline, due largely to a drop in real estate construction loans and non-credit-card consumer loans. Commercial and industrial loans to businesses were up 1 percent.

Last year may have been a turnaround year for banks, but the fallout continued from bad loans made in previous years. There were 157 bank failures in 2010, the most since 1992. The number of banks on FDIC’s “problem list” increased from 860 to 884 in the fourth quarter.

Bair, however, thinks bank failures peaked in 2010, and “we expect both the number and total assets of this year’s failures to be lower than last year’s.”

It appears that community banks may answer Bair’s call for more lending. Treasury Secretary Tim Geithner reported that community banks so far have submitted “hundreds of applications” requesting $4 billion in capital from the Small Business Lending Fund. That’s the new program called for in September’s Small Business Jobs Act, which will provide community banks with up to $30 billion in cheap capital for use in making loans to small businesses.

The Treasury Department will soon announce the first round of funding through this program, Geithner wrote Tuesday in a blog post.

Three states—California, Michigan and North Carolina—also have received funding through the State Small Business Credit Initiative. This program supports state programs aimed at boosting lending to small businesses.

“We expect to announce funding for other states soon,” Geithner wrote.

Both of these programs are fully paid for and won’t add to the federal deficit, he noted.

The Treasury Department isn’t done, however, at looking at ways to ease the credit crunch that hit small businesses when the financial crisis erupted in 2008. It plans to hold a conference March 22 to explore ways to help small businesses raise capital at each stage of their growth—“from seed capital, to growth equity, to accessing the public markets,” Geithner said.

Geithner participated in President Barack Obama’s Forum on Small Business in Cleveland on Tuesday and heard from many entrepreneurs about the challenges they face in obtaining the capital they need to grow their businesses.

“Direct and open conversations between government and entrepreneurs about how we can together meet the challenges small businesses face are key to our success,” Geithner wrote. “I look forward to continuing that conversation in D.C. next month.”

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Kent Hoover is the Washington bureau chief for bizjournals.