Fed chief urges banks to boost lending to small businesses

WASHINGTON - Federal Reserve Chairman Ben Bernanke stepped up pressure yesterday to get banks to boost lending to the nation's small businesses, a critical element to spurring the economic recovery and reducing unemployment.

Bernanke and other regulators have urged banks since February to increase their lending to smaller companies. Lawmakers on Capitol Hill have complained that small businesses that want to take out loans are having trouble getting them. Banks have countered by saying demand is weak.

Bernanke's latest comments come as legislative efforts to jump-start small-business lending have languished and the recovery has been losing momentum. He made them at a Fed conference exploring ways to help boost lending to small companies. "Making credit accessible to sound small businesses is crucial to our economic recovery," Bernanke said.

While big companies have stockpiled cash and are expected to report strong profits starting this week, small businesses have struggled to secure loans to expand and hire. The disparity between large and small businesses has been one reason the recovery has not picked up and could even stall. Small businesses usually help drive job creation during recoveries.

They employ roughly half of all Americans and account for about 60 percent of gross job creation, Bernanke said. And newer small businesses, those less than two years old, are especially important. Over the past 20 years, these startup enterprises accounted for roughly one-quarter of gross job creation, even though they employed less than 10 percent of the workforce, he added.

The Obama administration in early May sent Congress a proposal to create a $30-billion support program to unfreeze credit for the nation's small businesses. The fund would provide support to small- and medium-sized banks with assets of less than $10 billion to encourage them to increase lending to small businesses. The legislation has yet to pass in the Senate.

Bernanke said it is hard to tell whether the credit problem is more reflective of banks shying away from making loans to small businesses or a lack of demand from those companies.- AP