photo by Shirley Li, courtesy Medill
Ben Bernanke’s attitude toward banking and regulation has been more or less impervious to reality for quite some time.
So maybe the fact that he couldn’t refinance his own home will finally demonstrate that rock-bottom interest rates and easy credit are not the same thing. We can call this the era of “put up or shut up” banking: Either you put up collateral that is far more than adequate to secure the money you want to borrow, or banks don’t want to lend to you, no matter how reputable or financially stable you are.
Largely through measures like the Dodd-Frank Act, legislation that Bernanke vocally supported when he chaired the Federal Reserve, we have told bankers that virtually all risk is unacceptable. We have thus turned banking from a business that took calculated risks in furtherance of commerce to one that gathers deposits and mostly funnels them to the allegedly riskless U.S. government.
Incidentally, that’s about all Dodd-Frank has thus far accomplished, as only about half of the rules it mandates have been finalized, and many of them have achieved little or done things they were not intended to do. But bankers have gotten the message about risk loud and clear.
Speaking at a conference in Chicago earlier this month, Bernanke said he was unsuccessful in an attempt to finance his mortgage. He did not go into detail as to why, but he did not really need to, given the lending conditions that have followed in the wake of the regulation he oversaw and the legislation he supported. We can draw our own conclusions.
Like Bernanke, I have recent experience with the way banking is now conducted in this country. My business is currently posting its 20th consecutive year of revenue growth. It is financially stable and 100 percent owned by me. Since, like most of the American economy, our firm provides services rather than goods, we have no inventory and little physical equipment. Our major assets are intangible: the relationships we have built with our clients and the people we have hired, assembled and trained.
Recently, I sought a new credit line for the business in order to finance expansion. I approached a small community bank in the Northeast about the loan. This is exactly the sort of bank for which Bernanke not long ago claimed that Dodd-Frank would create a more level playing field, one where small-town bankers could make prudent loans based on intimate knowledge of their prospective borrowers. The bank I approached has an officer who has known and worked with me for nearly a decade; it quickly labeled me a five-star customer.
Yet after seven weeks of hemming and hawing, the bank announced that it would be happy to make the loan - but only if I could put up hard collateral, namely real estate, to secure it. Not only that, but the real estate had to be in one of the four Northeast states where that particular bank does business.
Although I do own property in New York, it was not practical to use it to secure the credit I wanted. Other property that my wife and I own in Florida was outside the bank’s service area, and thus of no interest to bankers looking to draw their already low risk of doing business with me down to zero.
Fortunately for me and my business, I recognized the direction this process was going, so I also opened talks with a medium-sized Southern bank that has a large presence in Florida. That bank was also eager to do business with Palisades Hudson, but again, only if I put up real property as collateral. I had enough equity in my Florida property to satisfy this bank, and we got the desired credit there.
So Ben, time to put up. Any bank would be happy to claim you as a customer, as long as you retain 100 percent of the risk. While you might think your lucrative speaking engagements, book deals and think tank income would be enough, banks aren’t taking any chances. You made sure they knew not to.