Banks Take Billions From TARP, but Give Fewer Loans

Despite TARP injection, borrowers looking loans still turned down by banks.

ByABC News
April 20, 2009, 6:03 PM

April 21, 2009— -- William Spellman didn't need the Wall Street Journal to tell him some of the nation's biggest banks are offering fewer loans these days.

In trying to get a co-signed loan to pay for his daughter to attend summer school at her college, Spellman says he has been turned down twice -- by Wells Fargo and Sallie Mae -- and he can't figure out why.

Increasing his sense of frustration, Spellman says, is that "these are the same companies my tax dollars just bailed out. They need my help, but now they're unwilling to help me."

Crunching numbers provided by the Treasury Department, the Wall Street Journal Monday found that the biggest recipients of the government bailout made or refinanced 23 percent fewer new loans in February than in October, the first month banks received TARP funds.

It is difficult to pinpoint exactly why Spellman, a 44-year-old IT professional from Indianapolis, was turned down. He says he and his wife have been gainfully employed for years; they have a good credit rating, and less debt now than they did when they first took a parent-plus loan for their 20-year-old daughter when she started at Indiana University two years ago. But the family also has a home equity loan and other debt.

What is certain is that the banks are not lending money the way they used to. Excluding mortgage refinancing, consumer lending dropped by about one-third from October to February and commercial lending fell about 40 percent, according to the Journal. That means fewer people are getting loans to buy homes and cars or pay for school, and fewer business are getting capital to expand.

Bank executives have argued that they're not to blame for decreased lending. Demand for loans, they say, is down. At the same time, a reduction in lending by non-bank businesses hurt or shuttered by the recession has made loans harder to get, they say.

"I think one of the huge misconceptions out there is that banks aren't lending," JPMorgan Chase CEO Jamie Dimon said during a conference call with analysts last week. "The lending balances are up and down based on demand ... The other things you have to keep in mind is that banks are only 25 percent of all lending. A lot of the other 75 percent kind of disappeared. So did a lot of the banks."