Squeezed Banks Slash Biz Loans

Real-estate fallout dries up credit stream
By Matt Cantor,  Newser User
Posted Jul 28, 2008 5:09 AM CDT
Wachovia Corp's new CEO Robert Steel speaks during a news conference at the bank in Charlotte, N.C., Thursday, July 10, 2008. "Our loan growth slowing is indicative of the economy," said a bank rep.   (AP Photo/Chuck Burton)
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(Newser) – Reeling from real-estate losses, banks are turning off the credit spigot to loan-seeking businesses, the New York Times reports. The loan reduction means more bad news down the line as money-starved companies begin to cut workers. Banks cut credit nearly 3% over the past year, the most since 2001, according to the Federal Reserve. The shrinking availability has hit companies especially hard as customers facing their own financial struggles horde their pennies.

Even financially sound companies are finding it difficult to get loans, preventing them, in turn, from buying from other companies. That means fewer hours for employees at all the firms involved. "We’re saying no to almost everybody,’” one loan-seeking entrepreneur recalled being told by a bank official. “This is why God made banks, for this kind of transaction," he grumbled. "This is going to slow down the American economy.”