"Wall Street banks have cut back on small business lending... [by] more than double the cutback in overall lending.... [Small business] options just keep disappearing."
-Elizabeth Warren, Chair of the TARP Congressional Oversight Panel
The Wall Street bailout of 2008 has radically altered the banking business. The bailout was supposed to keep credit flowing to Main Street, but it has wound up having the opposite effect. Small and medium-sized businesses have traditionally been the main engines for increasing employment, and they need bank credit for their working capital; but today credit to local businesses has collapsed nearly everywhere.
That's why so many states--the total is now fourteen--are considering turning to state-owned banks to get local credit flowing again.
The Bailout that Missed Main Street
The credit collapse of September 2008 was triggered by the speculative activities of giant Wall Street banks. These profligate banks, which would have gone bankrupt without federal support, have emerged from the crisis bigger and more powerful than before. The federal government has supported and subsidized bank consolidation, resulting in the elimination of more than a thousand community banks by takeover or failure.
The five largest banks now hold 40 percent of all deposits and 48 percent of all bank assets. These banks--Bank of America, Wells Fargo, JPMorgan Chase, Citigroup, and PNC--currently control more deposits than the next largest 45 banks combined.
They are big, they are powerful, and they have lost interest in local lending. In the past three years, the four largest banks have cut back on small business lending by a full 53 percent. The two banks that were the largest recipients of TARP funds, Bank of America and Citigroup, have cut back on local lending by 94 percent and 64 percent, respectively.