    [Public Papers of the Presidents of the United States: William J. Clinton (1993, Book I)]
    [March 10, 1993]
    [Pages 265-268]
    [From the U.S. Government Publishing Office www.gpo.gov]

    Remarks Announcing the Initiative to Alleviate the Credit Crunch
    March 10, 1993

        Thank you very much. Thank you very much, Secretary Bentsen, other
    members of the Cabinet and distinguished Members of the House and Senate
    of both parties, and the business men and women and the bankers who are
    here today.
        I am in debt to many people in this room and throughout this country
    who raised to me in many ways, over the 16 months in which I was engaged
    in the campaign for the Presidency, the question of the credit crunch.
    From the beginnings of that campaign in New Hampshire, across the
    country to Illinois and Michigan, down to Florida, across to California,
    and in all points in between, I repeatedly ran into small business men
    and women, I repeatedly met bankers themselves who said they wished that
    something could be done to open up credit again to creditworthy loans,
    to generate jobs in the private sector.
        Today we are taking a step to speed the economic recovery that will
    increase jobs by increasing access to credit for the main engine of our
    economy, small and medium-sized businesses. At the same time, by
    strengthening our banking system, our plan will move us beyond the
    banking problems of the last decade. The initiative avoids the
    regulatory excess and duplication we've seen and focuses on real risks
    within our financial institutions and on fair lending, equal
    opportunity, and credit availability.
        Every day, small business is a big part of all of our lives. It's
    the coffee shop on the corner, the florist down the street, the
    stationery store that carries office supplies, the dry cleaner, the
    contractor who will remodel a kitchen. Many are businesses with fewer
    than 100 employees. Many more employ fewer than 20 people. But they keep
    communities and neighborhoods vibrant and vital. They are the industry
    in a cottage, in a garage, in a spare bedroom. They are downtown in
    every town, and sometimes they grow into very large enterprises indeed.
        Small business includes small farms, the agricultural community.
    Their contribution is evident every day on our tables. But it is much
    more. They are the cultivators of an essential part of our history, our
    heritage, our culture. Small business is also high tech, the industries
    of tomorrow, from computer software to communications, to biotechnology
    and environmental testing, all enterprises that create high-wage, high-
    skill jobs for Americans today, and they will be there tomorrow.
        And small business has been the route to a better life for
    immigrants who set up a family business, for men and women who save as
    they work for others until they can venture off on their own. Often a
    small business is actually an outgrowth of the global economy. As larger
    firms downsize to remain competitive, they contract out to smaller
    firms. And many talented people who once worked for large companies are
    now going off on their own to seize opportunities in smaller
    enterprises, building businesses for themselves.
        Owning one's own business is a cornerstone of the American dream,
    fortified by hard work, determination, and creativity. My first
    experience in life with business was in my grandfather's little grocery
    store. He was the symbol of hope and opportunity to many people with
    whom he dealt in many ways, 6 days a week at all hours of the day and
    night.
        Today's small businesses are a barometer of the economic recovery.
    And as the strength of this recovery has been diluted by the inability
    to create jobs, it is clear that it's largely because small companies
    are still having a hard time. If you look at this chart here, you can
    see the number of small business failures, just since 1985: 119,000 in
    '85-'86; 118,000 the next year; 111,000 in the next 2-year period; but
    in '91-'92, almost 185,000 small business failures.

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        These businesses have been hit especially hard by the recession and
    by a problem not of their own making that can be summarized by two
    fearsome but now well-worn words: credit crunch. Small companies are
    simply unable in too many cases to get loans from banks. And I want to
    show this--they turned it, and I didn't see--if you look here, the
    growth in commercial and industrial loans, '85-'86, in billions of
    dollars; and the last 2 years, down to a negative $36 billion. Now, if
    these businesses can't begin or expand or try new ventures, that means
    stagnation for our economy, lost opportunity, and sometimes ruin for
    entrepreneurs. Indeed, I've met business people in this country in the
    last year and a half who've never missed a payment on a loan and still
    had the loans canceled.
        These problems are America's problems. When small businesses aren't
    prospering, they create fewer jobs, and that means fewer jobs for
    America. If you look at this last chart, you will see the real essence
    of why this has turned out to be, so far, a jobless recovery. In '85-
    '86, there was a positive change in small business employment of 2.4
    million; '87-'88, 2.8 million; '89-'90, 3.2 million; but down in '91-
    '92, 400,000. Now, in every year of the 1980's the Fortune 500 companies
    have reduced employment by several hundred thousand people a year in the
    United States. But all during the eighties that reduction was more than
    offset by the creation of new jobs in the small business sector, until
    the last couple of years.
        If you had to put in a sentence why this has been a jobless
    recovery, it's because small business job creation hasn't offset big
    business job losses. And that is the central challenge we face. As we
    take advantage of the incredible things going on now in the big and
    small business sector with productivity increases, with the aggregate
    indications that we're in an economic recovery, we have to look for
    ways, all of us together, to try to help to spur small business and
    medium-size business job growth so that we can put some jobs back into
    these impressive economic figures of the last quarter.
        Nearly two-thirds of all of our workers are employed by small
    businesses. And as I said, millions of jobs in the last decade were
    created by them, even as larger employers were downsizing, contracting
    out, or moving employment offshore. We cannot afford not to try to
    resume this trend in the 1990's. We know that if we create a reliable
    and secure system of credit for America's small businesses, they'll
    create jobs for Americans and profits for themselves. That's why we have
    offered incentives like investment tax credits for small employers, the
    new business capital gains tax, urban enterprise zones, and a network of
    small business community development banks.
        In our country you can become successful if you have a better idea
    that you can turn into reality. But that reality can only occur if
    credit is available, for most Americans. And we think we have a better
    idea for getting lenders and creditworthy borrowers together. What we
    propose does not involve any changes in legislation. These steps can be
    taken quickly because they have been agreed to already by the four
    Federal bank and thrift regulatory agencies: the Comptroller of the
    Currency, the Federal Reserve, the Federal Deposit Insurance
    Corporation, and the Office of Thrift Supervision. Today I'll outline
    the basics of the plan, but the four bank and thrift regulators are
    issuing a joint interagency policy statement today that sets out more of
    the details. It will be available to all of you, and most of you will
    understand it. [Laughter] I don't know if I left the implication that I
    didn't. [Laughter]
        What we have done, first of all, is to reexamine our examination
    system, a system that bankers often felt has become too excessive in the
    wake of the banking and savings and loan failures of the eighties. With
    this plan our examiners will be directed to do what they do best and not
    to spend endless hours on pointless paperwork. It will strengthen our
    oversight by shifting our regulatory attention from unproductive and
    repetitive procedures, redirecting our resources to better use so that
    bank examiners will be able to seek out the real risks in today's
    environment. They'll go after bad loans and troubled banks. That means
    improved safety and soundness. But they will reduce the credit crunch
    because they will reduce attention to things that do not deserve them.
        We will not, I will say again, we will not reduce attention to
    important regulation or to proper reserves for problem loans. The plan
    will not lower the capital requirements established in accordance with
    international standards. It will not cause a single bank to fail. And it
    will not cost the deposit insurance funds one dollar.
        Through a proper allocation of our regulatory resources, we will be
    able to focus more on examination procedures to further meaningful

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    compliance with the Community Reinvestment Act and to promote fair
    opportunities for all of our people while reducing the hassles for all
    creditworthy loans.
        Above all, borrowers can go to their banks expecting fair and equal
    treatment and a reasonable application process. Fairness is a goal for
    many good reasons, including the fact that women and other minorities
    have been very bullish for small business and for America. Female-owned
    companies now employ 11\1/2\ million Americans.
        A side effect of the savings and loan disaster was a reaction that
    forced many banks into a thinking mode that didn't distinguish between a
    good risk and a bad risk where small businesses were concerned. They
    were afraid to. This was a problem, especially for community bankers who
    frequently had to decide whether they could loan money to other members
    in their own community. Even if a banker could personally vouch that an
    applicant was a person of good character with an unblemished credit
    record and a good business track record, a loan might still be turned
    down because the banker felt his hands were tied by tight restrictions.
        So while we ask bankers to give the small business men and women
    credit, we'll give the bankers some credit too, as they consider loans
    to small and medium-size companies in their own communities and
    neighborhoods. They'll be encouraged to use their judgment to determine
    whether a borrower is creditworthy. And we're telling bankers that as
    long as their institutions and their practices are sound, they shouldn't
    be afraid of the regulator. If they disagree with a decision by a
    regulator, they'll now have a recourse, a workable and prompt appeals
    process.
        To bankers across the Nation we say, you are a pillar of our
    neighborhoods and communities. We know the demands of rebounding from
    the last decade have often been painful for many of you. Your comeback
    has been nothing short of amazing. But there is more work to do. And we
    need you to get it done. And if it gets done, there will be something to
    show for it, the kind of broad-based economic growth that benefits all
    of us.
        And we further say to bankers across the land that if you make
    sensible loans, the Government should not come down on you. That's why
    we're taking this action today. We want bankers to get back into the
    business of lending money, and we're going to work with them to make it
    happen.
        We're also making clear that taking collateral as part of a business
    loan should not be so burdensome or costly to discourage borrowers or
    lenders from making sound credit decisions. Often the only collateral a
    would-be borrower can offer is real estate. Of course, we learned the
    hard way in the eighties that we had to be careful where loans involving
    commercial real estate are concerned. But care has been confused with
    regulatory excess that has been too much of a burden for everyone. The
    changes we propose will strike a balance so that we can have both safety
    and credit availability.
        These changes will also address the paper crunch in getting a small
    business loan. It simply shouldn't be as burdensome to get a $25,000
    loan as it is to get a $25 million loan. It makes no sense for a small
    or medium-sized business borrower, or for an individual for that matter,
    to be required in every case to produce a pile of paper like this one--
    pretty thick--when a loan can be made safely in many cases, particularly
    by banks who have demonstrated judgment in their business practices,
    with merely a promissory note and a financial statement and possibly a
    short credit application like this.
        So under the current system, the paperwork--and I expect every one
    of you to come back and show me your measured envelopes here. We've got
    to prove that the difference is what we're asserting it is today.
    [Laughter] Under the current system, the paperwork is often daunting to
    the applicant and discourages banks from making smaller loans.
    Streamlining the process will make it easier to free up credit without
    compromising security. This is action that everyone, conscientious
    regulators, community-conscious banks, and growing businesses, can
    embrace.
        With this approach we want to marry the ingredients for a thriving
    business climate. Right now banks are healthier than they've been in
    years; 1990 was a record year for bank profitability. And these profits
    have been used to put banks in the strongest position they've been in,
    in a quarter of a century. At the same time, interest rates have gone
    down. Just 3 years ago the average interest rate on a small business
    loan was 12 percent. So far the average is 8 percent. The climate for
    business ventures has been made even sunnier by economic growth that
    we've seen in the last quarter. That's a

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    byproduct of the optimism for the growth that we are pressing for now
    with all the economic initiatives that are before the Congress and the
    country.
        So both supply and demand for business loans are there. And would-be
    small business owners are right to feel they have the wind at their
    backs. Now that we have banks in the strongest positions they've been in
    in a quarter century, they ought to be able to give us the strongest
    economic boost we've had for small business in a quarter century. Until
    now the problem has been that everyone has had to face a 10-foot wall
    called the credit crunch. This action that this administration is taking
    today should take a big chunk out of that wall. The result should be a
    flow of billions of dollars of economic stimulus that doesn't cost the
    American taxpayers one red cent. The payoff will be in new jobs and in
    reversing the charts that I have shown you today.
        At the same time, by encouraging new small business ventures, we'll
    be laying the groundwork for a smarter work force that can compete more
    effectively in the global economy. Getting financing to these businesses
    is absolutely essential to the future growth of America. We'll see the
    benefits, and so will our children.
        This administration is firmly and unequivocally committed to the
    private sector as the engine of economic growth in America. We have no
    illusions, no abstractions, no preoccupations; we know that this is what
    works in this country. In America we put people first, first by having a
    prosperous economy founded on a thriving private sector. What's good for
    America is good for business, and we are determined to make the climate
    for business and for growth better and better and better, beginning
    today where so many of you have told me for so long we ought to begin,
    with a real assault on the credit crunch.
        Thank you very much.

    Note: The President spoke at 1:43 p.m. in the East Room at the White
    House.