Politics

Obama Ready to Go Head To Head With Bankers

The president will personally urge the nation's top bankers to open the spigots for small business.

Bright and early Monday morning, President Obama will sit down with 12 of the nation’s top bankers for what could be a testy meeting. His guests will include the chief executives of Citigroup, Bank of America, Wells Fargo, Morgan Stanley and American Express. The president’s primary goal is to persuade them that it’s time to do more to spur economic growth.

The gathering comes amid renewed fury over government bank bailouts and renewed frustration over banks’ reluctance to lend. Obama hopes to persuade bankers to lend more, agree to financial reform and hold back on what he feels is excessive compensation. But much like the last time they were summoned to the White House in late March, bank CEOs are likely to listen politely and then do what they want.

Even before the election last November, dealing with financial institutions put Obama in a tough spot. As senator, he voted for a $700 billion package aimed at stabilizing the banking sector while financial markets were grinding to a halt. During the course of the year, he’s been trying to get money flowing to Main Street businesses while trying to take a hard line on Wall Street banks. The administration has diverted a piece of the bank bailout package toward stemming foreclosures and is now trying to redirect some of it to more lending to small businesses to help job creation. Meanwhile, he’s pushing hard for tougher financial regulations and hired a pay czar to oversee bank compensation. Both moves are opposed by the banks.

Still smarting from steep losses, banks around the country remain reluctant to lend. They’ve made little progress in permanently modifying loans for struggling homeowners. And show financial reform is moving at a snail’s pace. Even efforts to reform compensation have had mixed results. Goldman Sachs, which is free of bailout restrictions, voluntarily agreed, to hand out bonuses in the form of long-term stock to better align pay with risk. But the administration’s pay chief is looking to relax its compensation limits at insurer AIG after top executives threatened to quit.

On Monday, the president will try to press bankers into being more cooperative, reminding them of their obligation to taxpayers. Bankers will dutifully listen and politely nod. But when they get home, they aren’t likely to loosen the purse strings. The predicament, says banking consultant Bert Ely, is the lack of creditworthy borrowers. After years of too loose lending, many businesses and consumers have too much debt. The ones looking for more credit don’t deserve it. The good borrowers are hanging back, paying down their own debts. In addition, bankers complain that while administration aides urge more lending, bank examiners send the opposite signal when they carefully scrutinize every loan.

Recovery is a process that will play out over time as house prices gradually recover, the employment picture stabilizes and strong businesses feel comfortable borrowing. While the president needs to show progress before the 2010 midterm elections, he’s finding it very hard to speed things up.

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