President Barack Obama during his recent meeting at the White House with some of the nation’s top banking executives “urged these institutions here today to go back and take a third and fourth look about how they are operating when it comes to small business lending. My main message in today’s meeting was very simple: that America’s banks received extraordinary assistance from American taxpayers to rebuild their industry, and now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.”
The president is absolutely right: The American people have really dug deep to support the banking sector and they are powerful consumers of banking services. Therefore, here are three simple ideas that would help them know which banks are doing the most to get the economy back to strength:
- Banks should publish data on small business lending for each locality by size of business. The data should include the number of loans and amount of lending applied for, and the loans and amounts granted.
- Regulators or consumer groups should conduct mystery shopping exercises, during which people pose as running creditworthy businesses seeking credit at different banks across the country. These “sting operations” would need to be similar across the country so that if banks refuse to lend there would be clear cause for concern. By publishing the results of these mystery shopping exercises, it would be possible to identify banks that are being excessively conservative in their lending decisions.
- The SBA should widely publish data on banks’ lending through the SBA loan guarantee programs by bank and locality.
- All this data should be published online, mapped by locality, so that residents can know which banks are lending to local businesses and which are not.
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