In a letter from the Democrats of the Senate Committee on Banking, Housing, and Urban Affairs, Sen. Sherrod Brown (D-Ohio) and his colleagues called for regulators to find ways to encourage lending to “main street.”
The letter highlighted recent data from the Federal Reserve which showed less than one-third of small businesses that applied for traditional financing in 2021 received all the funding they sought. The senators wrote, “…banks are choosing to lend to bigger firms, and smaller business are suffering the consequences in an already restrictive environment.”
The senators’ letter suggests lending practices and standards for commercial clients are diverging based on business size to the advantage of larger businesses and the disadvantage of smaller businesses.
The senators also used the letter to highlight racial and gender disparities in small-business lending. They wrote that “about 14 percent of Black and Asian business owners, and 19 percent of Hispanic business owners, received all the financing they sought in 2021, compared to 34 percent of white small-business owners. The COVID-19 pandemic has only worsened pre-existing inequalities in our economy for businesses owned by entrepreneurs from historically underserved communities.”
Strong deposit growth at banks and credit unions should be used to support increased lending opportunities to small businesses, the senators argue. “The latest financial performance data released by the National Credit Union Administration shows total assets in federally insured credit unions rose by $215.8 billion, or 11.7 percent, to $2.06 trillion over the year ending in the fourth quarter of 2021, and insured shares and deposits grew $166.8 billion, or 11.4 percent, to $1.63 trillion. Likewise, the Federal Deposit Insurance Corporation’s total assets on insured commercial banks and savings institutions rose by $1.9 trillion, or 8.5 percent, to $23.7 trillion over the year ending in the fourth quarter of 2021, and insured deposits grew $1.9 trillion, or 10.5 percent, to 19.7 trillion.”
The letter concluded with the urging of banking regulators to work with lenders to encourage lending to small businesses.
U.S. Sens. Dick Durbin (D-Ill.), Richard Blumenthal (D-Conn.), Tina Smith (D-Minn.), Catherine Cortez Masto (D-Nev.), Kirsten Gillibrand (D-N.Y.), Reverend Raphael Warnock (D-Ga.), Chuck Schumer (D-N.Y.), Mark Warner (D-Va.) and Brian Schatz (D-Hawaii) also signed on to Brown’s letter.