WRAPUP 1-Bernanke says spurring credit key to rebound

* Bernanke: More business credit crucial to recovery

* Duke says can’t force lending, better outlook is key

* Fed’s Lacker, Duke play down double-dip worries

By Mark Felsenthal

WASHINGTON, July 12 (BestGrowthStock) – Boosting credit to
struggling small businesses is vital to keep a tepid U.S.
recovery on track but wary banks can’t be forced to lend from
their bountiful reserves, Federal Reserve officials said on

Fed Chairman Ben Bernanke underlined the necessity for
companies — many still working their way back to health from
the deep recession — to be able to get loans when they need
them to expand and to hire.

“To support the recovery, we need to find ways to ensure
that credit-worthy borrowers have access to needed loans,” he
told a Fed-sponsored conference on small business financing.

The conference caps more than 40 information-gathering
meetings the central bank arranged and held across the country
to try to find ways to overcome obstacles to lending.

On the sidelines of the event, Fed Governor Elizabeth Duke
drew attention to another harsh reality: the difficulty of
persuading lenders that a slow-paced recovery warrants putting
their money at risk by lending it.

“I don’t know of any way we can actually force the banks to
lend the reserves,” she told CNBC television. “There are a lot
of reserves out there and I think it’s going to take general
economic improvement once the business prospects are better.”

A scarcity of credit for small- and medium-sized
businesses, traditionally the driving-force behind job
creation, has been blamed for woes ranging from a 9
percent-plus unemployment rate to a perceived risk of
double-dip recession.


With a recent spate of economic data suggesting the
recovery is flagging, the Fed faces a quandary. It has already
lowered interest rates to near zero and pumped up bank reserves
by flooding the financial system with more than $1 trillion.

While most analysts expect the Fed’s next move will be to
eventually tighten monetary policy, some think further easing
may be needed to prevent a new downturn.

The U.S. central bank could pump more liquidity into the
economy through a variety of so-called “quantitative easing”
methods like buying assets from banks or buying mortgage
securities in hope of spurring more lending.

Richmond Federal Reserve Bank President Jeffrey Lacker
argued on Monday that double-dip fears were overdone, saying
the string of softer-than-expected data, from anemic private
hiring to battered consumer confidence, was not “inconsistent
with a moderately paced recovery.”

“Market participants seem to be overreacting to a couple of
reports that have been a little bit below what people
expected,” he told reporters who attended an event at the
Richmond Fed’s headquarters.

Lacker, a “hawk” on inflation who is not a voter this year
on the Fed’s policy-setting Federal Open Market Committee, was
the only Fed speaker to directly address the policy outlook.

“For me, consideration of further easing steps now is very
far away,” Lacker said. “It would take a very substantial,
unanticipated adverse shock.”

Like Lacker, Duke said she felt the economy was on track
for continued growth. In response to a question, she said she
didn’t think a double-dip recession was a major worry.

“It’s still a moderate recovery,” Duke said, adding that
she expects credit flow to “gradually loosen up” but in
response to brightening business prospects rather than because
it is forced upon bankers.

The economy has grown for three straight quarters beginning
in the third quarter of 2009, but recent economic data implying
softening housing markets and weak consumer confidence has led
investors to fear the expansion could stumble again.

Credit availability has become a concern after the
2007-2009 crisis that hit financial firms exceptionally hard.
Total loans held by commercial banks dropped 5 percent last
year and lending has continued to shrink in 2010.

Bernanke said small businesses play a key role in job
creation but they continue to report tough credit conditions.
The Fed “takes very seriously” complaints from bankers that
bank examiners often stop lenders from making good loans, he

But Bernanke also said lower loan demand and many
businesses’ still-weak financial position were factors holding
back lending.

The Obama administration backs legislation to create a $30
billion fund to boost capital at community banks to encourage
small business lending, but that faces an uncertain fate in
Congress where lawmakers seeking re-election in November are
wary of anything that could be seen as a bailout.
(Reporting by Mark Felsenthal and Pedro Dacosta, writing by
Glenn Somerville, Editing by Philip Barbara)

WRAPUP 1-Bernanke says spurring credit key to rebound