[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.

[[Page 266]]

    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

[[Page 267]]

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

[[Page 268]]

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.