One More Worry for Banks: Wal-Mart

From CNNMoney.com:

America's biggest banks are in retreat, tightening lending, increasing fees, and closing branches. But one company still wants to become your neighborhood bank: Wal-Mart.

While the banking sector has been in turmoil, Wal-Mart has aggressively courted customers' pocketbooks, partnering with financial services companies to offer money transfers, check cashing and bill payments, and putting virtual checking accounts -- refillable pre-paid debit cards -- in the hands of more than two million customers.

The company downplays its desire to garner a banking license, but recent changes in the banking and regulatory landscape has only increased the eventual likelihood of a Wal-Mart Bank. The latest evidence that Wal-Mart plans to continue its push into financial services was the news last week that it had taken an equity stake in Green Dot, which manages the retailer's prepaid debit cards and is currently seeking regulatory approval to acquire a small Utah-based bank for $15.7 million.

Wal-Mart has attempted to acquire its own banking license several times since 1999. In 2007 it dropped plans to acquire an industrial-bank charter in Utah after heavy lobbying by the banking industry. Banks argued that Wal-Mart might steer lending toward favorable suppliers and away from competitors. Had Wal-Mart succeeded, its Utah "industrial loan corporation" could have handled all of its card processing and allowed the retail giant to take deposits and make loans.

While it must now partner with companies like Green Dot and SunTrust (STI, Fortune 500) to provide such services in the United States, this shaving of the profit margin hasn't slowed Wal-Mart (WMT, Fortune 500) down. Last week, Wal-Mart opened its 1,000th "Money Center" and announced that it planned to expand to 500 more stores. It also trumpeted the launching of a Wal-Mart credit card in Canada, where it received a banking license just last month. In Mexico, where it has operated a bank since 2007, Wal-Mart has plans to open up to 150 new branches and take deposits in the checkout line. Back in the U.S., through a partnership with SunTrust, Wal-Mart has nearly doubled the number of bank branches in its stores over the last five years to a total of 83.

New Credit Initiative to Boost Lending to Small Businesses

Owning your own business is a rewarding path for many people toward wealth and personal success. Small businesses are what drive the national economy and that’s why I support more funding toward small business lending. It would be especially rewarding to see more funding extended to businesses that otherwise have difficulty with funding from large banks.
The House of Representatives is expected to take action on a proposed $2 billion grant initiative that could bring about billions in lending to small businesses, especially women and minority owned businesses that might be having a hard time getting credit. It’s for these reasons I enjoy sharing with others my personal success story.

The initiative, modeled after state capital access programs, would require states to pay $10 of lending for every $1 of federal funding they received. According to the Wall Street Journal, this new policy will work alongside the Treasury’s small business fund. The small business fund is specifically designed for community banks that are based in neighborhoods, as opposed to the larger Wall Street financial firms.

The real question is whether this proposed fund will truly help increase lending or if it will exhibit some of the same weaknesses as the Troubled Asset Relief Program (TARP)’s capital purchase program -- which has not necessarily seen an increase in lending as was expected. Hopefully, there will be safeguards in place to make sure the initiative delivers results. Our economy would also benefit from the creation of much needed jobs through this measure.

Small Businesses Get a Boost from Nonprofit Lenders

I am a huge proponent of people starting their own business—it is the American Dream to be successful at your own business!! Thank goodness that our government is focused on making it easier for small businesses to acquire loans. Community development financial institutions or CDFIs are certified nonprofit banks, credit unions, funds and venture capitalists which have been set up by the government to offer loans in low income and under-served urban and rural areas.

A Klipinger.com article explains how CDIFs can be more flexible. Read on!

FDIC: Return to Profit Fails to Boost Bank Lending

From Risk.net:

Assistance from the US government has helped the country's banking industry back into profit, but the improvement hasn't been reflected in increased lending, according to the Federal Deposit Insurance Corporation (FDIC).

In its latest Quarterly Banking Profile, issued yesterday, the FDIC reports an aggregate net income for the banks it supervises of $914 million in the fourth quarter of 2009, down from $2 billion in the third quarter but still a huge rebound from the $37.3 billion loss the industry suffered in the fourth quarter of 2008.

But the report has more bad news than good. Non-current loans and leases, mainly residential mortgages, continued to rise, hitting $391.3 billion – 5.37 percent of all loans by value, the highest level ever recorded. And, the FDIC adds, the industry also reduced its coverage ratio – reserves as a fraction of non-current loans and leases – to a 28-year low of 58.1percent. In other words, the banks only managed to scrape into the black by deciding not to increase their reserves in line with their problem loan books – had they done so, it would have meant another $7.4 billion in reserves, meaning the industry would have been well into the red.

Although much of the aid to the banking industry had the explicit intention of improving the supply of credit to the wider economy, this has not yet happened. The FDIC has found: the quarter was the fourth in succession to see a drop in total assets, which fell 5.3%, the largest single-quarter drop since the FDIC was founded in 1942. Commercial and residential mortgages, and commercial and industrial loans fell hardest. This might represent a drop in demand, as well as reluctance to lend: in its most recent loan officers' survey, released last month, the Fed found that "demand from both businesses and households for all major categories of loans weakened further, on net, over the past three months".

Obama (again) Urges Bankers to Lend more Money

From USAToday.com:

It was a little like financial Groundhog Day at the White House today-- President Obama again met with a group of bankers, and again asked them to provide more loans to business owners so they can hire more people.

The difference is that this group consisted of a dozen owners of smaller, community banks.

Obama said he had "the same conversation that I had with some of the larger banks last week and that I've been having with CEOs of companies across the country."

The goal, he said, is to see "that businesses are getting the capital that they need and that we are starting to see people hired again, people able to finance their homes, finance college educations and so forth."

And again, banking analysts pointed out that it's not that easy to find credit-worthy borrowers in this economy.

And many lenders are "getting a lot of grief from the banking examiners," said banking consultant Bert Ely. "They're criticizing the bankers for some of their loans."

At the White House meeting, Obama echoed a message he has used for months, and will continue to use as long as the unemployment rate remains in double digits. "Everything that we're going to be doing here in the White House over the next several months," he said. "is going to be geared towards catalyzing and spurring additional lending."

Obama also asked this second set of bankers to back new financial regulations that are pending in Congress.