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Bernanke Encourages Loans to Small Businesses

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By Jason Beahm on June 14, 2010 12:45 PM

As the economy slowly shows signs of recovery, many wonder what steps should be taken in order to speed things up. While some see a bright future ahead, other economists are concerned about a double dip recession. 

In order to reduce unemployment and spur economic recovery, banks must increase loans to small businesses, Ben Bernanke, the Federal Reserve Chairman said this week, in a meeting at the Federal Reserve Bank in Detroit. Bernanke stated that banks must increase the flow of capital to small businesses in order to get the country back on track and improve lagging growth.

"While maintaining appropriate prudence, lenders should do all they can to meet the needs of legitimate, creditworthy borrowers ... Encouraging lending to small businesses that are well positioned to pay is a positive, not a negative, for the safety and soundness of our banking system."

Bernanke made his comments amid numbers showing that loans to small businesses declined by 6% in the first quarter of 2010. In the first quarter of 2008, small business loans totaled $700 billion versus $660 billion this quarter. Bernanke was uncertain as to the exact cause of the decline, saying that it could be the result of a reduction in demand, or tightening credit in the face of the economic crisis.

Bernanke was critical of banks who made "mechanical, automatic rejections" based solely on industry, location or other negative factors. "We've still got a long way to go, but I'm hopeful that we'll see improved conditions for credit going forward." Bernanke said.

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