Tara Humston Assistant Vice President August 19, 2011 Small Business Lending and Regulatory Perspectives

Federal Reserve Bank of Kansas City Small Business lending statistics Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers Examiner assessment of government guaranteed programs and approach to reviewing guaranteed loans Discussion topics

Federal Reserve Bank of Kansas City Funding Sources For Small Businesses Source: National Small Business Association, 2011 Mid-Year Economic Report 19% of small firms use a 2 nd mortgage as collateral for a business loan Credit Cards Bank Loan

Federal Reserve Bank of Kansas City Total amount of small business lending: $756 Billion $ Billions Bank Lending to Small Businesses Sources: Reports of Condition and Income, June 2011 The Nilson Report, June 2011

Federal Reserve Bank of Kansas City $ Billions Credit Card data from The Nilson Report, June 2011 Small Loan data from Reports of Condition and Income, June 2011 Small Business Lending by Bank Size Total: $756 Billion

Federal Reserve Bank of Kansas City Loans To Small Businesses Has Stabilized Along With Small C&I Loans $ Billions Source: Reports of Condition and Income – Small Loan data

Federal Reserve Bank of Kansas City Source: Reports of Condition and Income – Small Loan data *Note: The sample of banks used to calculate these trends was adjusted to eliminate distortions from acquisitions, including failed banks More Community Banks Increased Small Business Lending, While More Large Banks Increased Overall Business Lending (June 2010 – June 2011) Bank Count: 4,340 1, % Increasing Lending

Federal Reserve Bank of Kansas City Small Businesses Report Little Demand for Credit % of Small Businesses 8% 28% 64% Source: NFIB Small Business Economic Trends (August 2011)

Federal Reserve Bank of Kansas City Bankers Report Stronger Loan Demand From Small Businesses Net Percentage Reporting Stronger Demand for C&I Loans Weakening Strengthening Source: Senior Loan Officer Opinion Survey on Bank Lending Practices (April 2011)

Federal Reserve Bank of Kansas City Conclusions Lending Activity to Small Business Small business credit appears to be available currently, with more banks showing increasing lending across credit products. Smaller banks in particular are focused on small business lending. Small businesses report show growing concerns other than credit availability. Small businesses are fairly satisfied with current financing options. Banking conditions are slowly improving with the industry showing better earnings and a lower level of problem loans on their books. This could likely bolster increasing levels of lending in future reporting periods.

Federal Reserve Bank of Kansas City Supervisory Expectations Underwriting and Risk Management Considerations Examination Reviews Interagency Statement on Meeting the Credit Needs of Creditworthy Small Business Borrowers

Federal Reserve Bank of Kansas City

Guaranteed loans are viewed as credit enhancements on potentially weaker credits and are typically “passed” for classification purposes Examiners assess if improper practices may jeopardize the guarantee Guaranteed portions of credits are given preferential treatment based on risk calculations for capital standards – generally 20% Examiner Approach to Review of Guaranteed Loans

Federal Reserve Bank of Kansas City