AP distorts Bernanke to attack Small Business Jobs Act

AP: “Bernanke and others have questioned whether the problem is lack of capital, or ... creditworthy borrowers.” In a recent article, the AP attacked the Small Business Jobs Act, which would provide $30 billion to “struggling community banks” as a “bank bailout that risk[s] taxpayer billions,” and asserted that:

Some banks will have an easier time granting loans after receiving bailouts. But Federal Reserve Chairman Ben Bernanke and others have questioned whether the problem is lack of capital, or if there simply aren't enough creditworthy borrowers.

However, Bernanke called that question “difficult-to-answer,” but said “we need to find ways to ensure that creditworthy borrowers have access to needed loans.” From Bernanke's July 12 speech at the Federal Reserve Meeting Series: “Addressing the Financing Needs of Small Businesses”:

The formation and growth of small businesses depends critically on access to credit. Unfortunately, those businesses report that credit conditions remain very difficult. For example, the net percentage of survey respondents telling the National Federation of Independent Business that credit conditions have tightened over the prior three months has remained extremely elevated by historical standards. And one measure of banks' loans to small businesses dropped from more than $710 billion in the second quarter of 2008 to less than $670 billion in the first quarter of 2010. An important but difficult-to-answer question is, How much of this reduction has been driven by weaker demand for loans from small businesses, how much by a deterioration in the financial condition of small businesses during the economic downturn, and how much by restricted credit availability? No doubt all three factors have played a role. Clearly, though, to support the recovery, we need to find ways to ensure that creditworthy borrowers have access to needed loans.

Bernanke went on to discuss the efforts the Fed has made to “facilitate the flow of credit” including “strengthening the nation's banks.” Later during the speech, Bernanke added:

Over the past two years, the Federal Reserve and other agencies have made a concerted effort to stabilize our financial system and our economy. These efforts, importantly, have included working to facilitate the flow of credit to viable small businesses. At the Federal Reserve, we helped bring capital from the securities markets to small businesses through the Term Asset-Backed Securities Loan Facility -- the TALF program. More than 850,000 small business loans were financed in part by securities whose issuance was supported by TALF. We have also been focused on strengthening the nation's banks, so that they can resume normal lending as quickly as possible. For example, the stress tests that we conducted last year helped restore confidence in the banking system, allowing banks to raise the capital they need to help offset credit losses and, ultimately, to provide the basis for new lending.

AP corrected story after falsehood identified by White House

Prior version of the article claimed “775 banks on the government's 'problem' list could qualify for bailouts for the first time.” A prior version of the AP article claimed:

The trade groups insist that smaller banks are not necessarily riskier because they weren't behind the speculation that nearly toppled Wall Street.

History suggests that's not true. Most of the 268 banks that have failed since 2008 were community banks. Yet under the new program, the 775 banks on the government's “problem” list could qualify for bailouts for the first time.

Following rebuttal from White House, the AP issued a correction. Following a blog post from the White House, which noted that contrary to the AP's assertion: “The legislation explicitly states that 'an eligible institution may not receive any capital investment under the Program, if (i) such institution is on the FDIC problem bank list; or (ii) such institution has been removed from the FDIC problem bank list for less than 90 days'.” The AP deleted the line and issued the following correction:

(This version CORRECTS by deleting reference to 775 banks on the government's “problem” list possibly qualifying for bailouts for the first time; that was in an earlier version of the legislation but has since been cut. This story is part of AP's general news and financial services. AP Video.)