Why Don't Banks Lend More? Look At The Roadblocks

The story "Jumping into the credit gaps" (Finance, Oct. 19) states that banks are shy of making loans and other lenders are filling the gap. You would be loan-shy, too, if:

-- Regulators were superaggressive in forcing you to write off loans against scarce capital, out of fear of having another savings and loan debacle.

-- You could do far better in making investments than loans, because they had low or no capital-backing requirements.

-- Borrowers still looked upon the banker as an easy mark and hesitated to accept the requirement that they place some of their own money at risk in the venture.

-- Bankruptcy and foreclosure statutes and interpretations made it difficult and time-consuming for banks to get their money back in cases of default.

-- Nonbank competitors in the loan market could undercut rates because they had no reserve requirements or Community Reinvestment Act requirements to meet.

Paul S. Nadler

Professor of Finance


Newark, N.J.

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