Bernanke: ‘Frustratingly Slow’ Growth Impedes Lending

Federal Reserve Chairman Ben S. Bernanke said the weak U.S. economy impedes efforts by banks to make profitable loans.

“Despite some recent signs of improvement, the recovery has been frustratingly slow, constraining opportunities for profitable lending,” Bernanke said today in remarks recorded for delivery at the Independent Community Bankers of America National Convention and Techworld in Nashville, Tennessee.

The Federal Open Market Committee said yesterday that economic conditions would still warrant holding the benchmark interest rate near zero at least through late 2014.

Community banks are “facing difficult challenges,” Bernanke said. “Their close ties to local economies are, on balance, a source of strength, but a drawback of those ties is that the fortunes of communities and their banks tend to rise and fall together.”

The best six-month streak of job growth since 2006 prompted Bernanke yesterday to acknowledge an improved path for the economy, even as policy makers repeated that unemployment is “elevated” and that strains in global markets “continue to pose significant downside risks to the economic outlook.”

Bernanke said that “together with economic conditions, regulation and supervision are among the top concerns for community banks.”

Bernanke’s remarks were similar to a Feb. 16 speech on community banking that he delivered at a conference sponsored by the Federal Deposit Insurance Corp.

Tougher Supervision

U.S. banks face higher costs under tougher supervision including the Dodd-Frank Act. The firms have watched the gap shrink between their interest earned and interest paid out as the Fed pushed down long-term interest rates by purchasing $2.3 trillion in bonds and lengthened the average duration of the securities in its portfolio.

Community banks are exempt from some of the most rigorous new regulations, such as the “stress test” focused on the largest U.S. banks.

The Fed released results of the test yesterday, saying 15 of 19 banks would be able to maintain capital levels above a regulatory minimum in an “extremely adverse” economic scenario, even while continuing to pay dividends and repurchasing stock.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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Ben Bernanke

Joshua Roberts/Bloomberg

Ben S. Bernanke, chairman of the U.S. Federal Reserve, before delivering his semi-annual monetary policy report to the Senate Banking Committee in Washington on March 1, 2012.

Ben S. Bernanke, chairman of the U.S. Federal Reserve, before delivering his semi-annual monetary policy report to the Senate Banking Committee in Washington on March 1, 2012. Photographer: Joshua Roberts/Bloomberg