(This post originally appeared on The Guardian)
A financial collapse. Plummeting economic growth. Tens of thousands of bankrupt small businesses. Millions laid off. A stock market crash. No, this is not 2020. Yet. That was 2009, the time of our last Great Recession.
At that time, and despite many dubious decisions made by our country’s banking leaders at the highest of levels that profited themselves at the expense of many others, the federal government saw fit to bail out those same parties with billions of dollars of taxpayer money in order to save our economy. The CEOs of those banks accepted those funds and used them to wipe away their past sins and get themselves back on sounder footing.
Fast-forward 11 years and our country now grapples with another economic disaster, this time brought on by a worldwide viral pandemic. Our government, in order to save millions of small businesses that face financial ruin caused by forced closings and “shelter-in-place” orders, has approved $350bn to aid those flailing businesses.
In order to get this money to as many businesses as fast as possible, the government decides to use federally insured financial institutions, and seeks to particularly lean on the already established Small Business Administration (SBA) and its vast network of member banks. They do this with the Paycheck Protection Program (PPP), which was part of a $2.2tn stimulus bill and was designed to help small businesses keep staff on their payrolls.
“Just loan these desperate small businesses money,” the government tells these banks. “We’ll guarantee it, and even forgive it.”
You would think – particularly as medical, police, firefighters, let alone grocery clerks – are literally risking their lives to do their part in these terrifying times, the bankers of this country would see this as an opportunity to step up and pay it forward themselves. They would leap at the chance to help all those small businesses that they’ve been courting on television, radio and online all these years.
And some banks – particularly smaller, independent banks, not to mention credit unions – have done just that. They were the first to process loan applications for their struggling small business customers last Friday when the SBA opened their loan window.
And then there’s Bank of America, Wells Fargo and other large banks like JPMorgan Chase and Citigroup who have all said “not so fast”. These banks last week, at such a critical moment, gathered together and decided to slow things down. They limited loans only to customers and credit card holders. They came up with “new” lending requirements and asked for more documentation over and above SBA guidelines. They capped the amount of loans they would make. The rules aren’t clear, they cried, and we have to work harder!
“Are you kidding me @BankofAmerica,” Melissa Perri, a CEO, tweeted. “With this requirement of having a credit card to apply for the PPP? What type of scam is this? I have been a loyal customer for years with my business accounts. #bankofamerica #PPPloan”
“#bankofamerica I have been a business customer for 17 Years,” complained Eric Martel, an entrepreneur. “I tried to apply for SBA Paycheck Protection to pay for employees and they denied me. Looking for another bank.”
The outrage made #bankofamerica a trending hashtag on Twitter that day and sparked the Republican senator Marco Rubio, a prominent member of the team that crafted the Paycheck Protection Act, to voice his concern, tweeting that “This is a @BankofAmerica, requirement not a govt one. They should drop it. This money is 100% guaranteed by fed govt.”
So shame on Bank of America, right? Well, yes. But I don’t believe that’s the only problem.
Choosing to only favor customers over everyone else, requiring excessive documentation or capping loans was a bad and misguided decision. Publicly complaining was a bad PR move. Not being more proactive in the weeks they had to prepare was poor planning.
But in their defense, Bank of America and other big banks have been loaning lots of money under the stimulus program. There were technical problems with the SBA loan system. The rules from the SBA and Treasury were unclear and placed a few too many burdens on the lender. Some banks – like Wells Fargo – were subject to federally mandated loan caps as a result of their past reprehensible behavior. Banks do have an obligation to their shareholders and customers – and the economy as a whole – to keep watch on their balance sheets. They are notoriously conservative (except when they’re not, like in the years preceding 2009), and we want them to be that way.
The good news is that the treasury department just issued additional guidelines for lenders this week and key policymakers like Rubio are pushing through more changes to make the stimulus plan – for which he contributed so much – a success. He posted a series of tweets on Monday that addressed his concerns including the Federal Reserve’s intention to “help clear up more space on lender balance sheets to issue #PPPloans by either making #PPP more attractive to secondary market buyers, or by buying #PPP loans from lenders directly”.
Regardless, the behavior of these banks does not surprise me.
I hate to say I told you so, but I did see this this coming last week when I wrote here that “for some of them [banks], this stimulus bill is a potential hassle … it’s just a pain in the neck and may not be worth all the headaches.”
I believe that’s what really going on at Bank of America and its fellow big lenders. They’re looking at this program not as an opportunity to grow their small business lending practices (like many smart smaller banks and credit unions) but as a burden, a hassle and a distraction from what really makes them money: their big business customers. I hope I’m wrong about this. But if I’m right – and I believe I am – then that’s the real reason why they should be ashamed of themselves.