Bank Lending Policy is a Problem in Need of a Solution

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Why Tough Bank Lending Policies are Boosting Default Rates, Write-offs (Click on image to read the article)

This article from FinCriAdvisor makes a case for the banks hand in fueling further bankruptcies as a result of their tight lending policies. These strict lending policies have lead and will continue to lead to businesses, and in the case of the article, contractors to go belly-up as they cannot secure financing to ensure their companies are going concerns. Not only are bankruptcies expensive for the company filing for them, they also take quite a long time to reach a suitable resolution through restructuring

According to Bob Regnier, chairman, president and CEO of Bank of Blue Valley in Overland Park, “Bankruptcy can be a formidable obstacle that pushes out resolution by 6 to 9 months”. If banks were to ease-up on their lending policies and free up much needed credit for struggling businesses, the financial restructuring process for these businesses could be completed in a much shorter time, and result in further economic activity.

The banks are aware that all these bankruptcies are having a detrimental impact on their business, but they have their own problems to deal with. According to attorney Chet Cobb, a partner at Phillips Lytle LLP in New York, “Financial institutions calling in loans have little choice because their own debt obligations are coming due, and there may be insufficient cash available”.

So what is the solution to this seemingly catch-22 scenario? Refer to the “Solutions” section for some novel ideas.

“Bankruptcy can be a
formidable obstacle that pushes out resolution by 6 to 9
months
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~ by maniebrahimi on June 12, 2009.

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