Obama urges small U.S. banks to lend, eyes red tape

U.S. President Barack Obama (R) and Treasury Secretary Timothy Geithner meet with CEOs of several small and community banks in the Roosevelt Room at the White House in Washington December 22, 2009.

WASHINGTON (Reuters) - U.S. President Barack Obama urged the country's smaller community banks on Tuesday to increase lending to small businesses and vowed to help the process by doing what he can to cut regulatory red tape.

"The pendulum might have swung too far in the direction of not lending," Obama told reporters after meeting with a group of small bankers chosen from communities across the country.

"If we can get that balance right, there are businesses and communities out there that are ready to grow," he said.

With U.S. unemployment at a 26-year high of 10 percent, Obama has undertaken a fresh push to boost job creation on top of a $787 billion emergency government spending package he signed in February.

His meeting with community bankers followed a gathering with the heads of the country's largest lenders last week, after publicly castigating big bankers as fat cats, and follows a White House jobs summit staged earlier in December.

U.S. growth resumed in the third quarter after the worst economic slump in 70 years, which has also led to the failure of 140 banks so far this year, as loans soured and mortgage foreclosures soared.

But job creation has lagged and small businesses complain that lenders are reluctant to extend credit, hampering their ability to hire more workers.

"There remains enormous opportunities as we come out of this recession for businesses to start growing again and to start hiring again," Obama said.

Banks explain that the collapse of the U.S. real estate market, which sparked a global financial crisis last year, has eroded the value of collateral that aspiring borrowers can offer as security for new loans.

In addition, they complain that bank regulators are being tough on them to tighten lending standards, which officials now say were too lax and contributed to poor lending decisions that helped fuel the property boom and bust.

"Community banks continue to face overly aggressive examinations that can hinder small-business lending," said the Independent Community Bankers of America, eight of whose members attended the White House meeting.

RED TAPE

Obama said he would do what he could to help with regulatory issues, which he acknowledged may constrain some banks that otherwise have a solid capital base and would like to lend. But he stressed that the White House could not issue direct orders to independent banking regulators.

"We are looking to see if there is a possibility to cut some of the red tape," he said. "I think we do have an obligation to make sure that the regulatory schemes that we come up with are more streamlined and more efficient and send clear signals to the banks involved."

Obama wants a major overhaul of the country's financial regulations after last year's financial crisis, including a consumer financial protection agency to safeguard households from risky lending practices that contributed to the problems.

Banks oppose the new rules and claim they will limit customer choice but Obama said he saw a clear need to improve transparency and fairness in lending.

"The more we are making sure that banks aren't competing by how obscure their fine print is, but rather competing on the basis of the quality of their service and the terms of their loans, the better off consumers are going to be," Obama said.

Twelve community bank chiefs attended the White House meeting. The banks were: Carver Federal Savings Bank (New York City); German American Bancorp (Jasper, Indiana); Kalamazoo County State Bank (Schoolcraft, Michigan); Solvay Bank (Solvay, New York); Centinel Bank of Taos (Taos, New Mexico); Diamond Bancorp (Schaumburg, Illinois); Planters & Merchants (Gillett, Arkansas); Legacy Bank (Milwaukee); City First Bank (Washington, D.C.); HOPE Community Credit Union (Madison, Mississippi); New Alliance Bank (New Haven, Connecticut) and Monadnock Community Bank (Peterborough, New Hampshire).

(Editing by Vicki Allen and Bill Trott)