containment -- can deploy subsea containment procedures. these changes and regulatory enhancements have been rapid. there have been a number of questions from industry and others about our new regulations about how we will apply the rules going forward. we have held dozens of meetings. with federal and state representatives, non- governmental organizations and operators. last month, we issued a guidance document, which provides a

comprehensive outline for the way to issue permits in deep water. we have received input from industry on the guidance. we note this guidance will not resolve every question and operator may have about the deep water permitting process. we intended it to address significant questions we have heard and to provide answers for operators to resume work in deep water. the fact that continued that this is necessary is not surprising. with the volume of new rules we have issued in recent months, the need for additional clarification was inevitable and necessary. it reflects no more than the fact that these are complex issues to work through. that is exactly what we have been doing. we hope and trust this guidance

has clarified some of the difficult and complex issues that have risen in recent months. we are committed to working with industry to provide additional guidance on these and other issues as it becomes necessary. the one thing that the secretary and i firmly believe and that is reinforced and supported by the commission's report is that a retreat on drilling said he is simply not an option. as you can see, we have already put in place since it in pieces of our reform agenda. -- put in place significant pieces of our reform agenda. the complexities and risks will continue to evolve, particularly in frontier departments like ultra-deep water. we will proceed to the rule- making and know this process to implement further reforms like

blowout preventers and the vehicles. the bureau will promulgate additional safety reforms through the rule-making process including the verification a .m. programs.e these are among the issues discussed in the commission's report and the commission provides useful insight about all of these issues. over the past few months, since our new rules were announced at the end of september, we have heard from countless companies, trade associations, and members of congress about the anxiety that currently exists in the industry that we will change the rules of the permitted in the panache of the permitting process significantly.

the- -- of the permitting process sit in. barring significant and unanticipated revelations about the root causes of the deepwater horizon explosion, i do not anticipate further emergency rule making. at the same time, we can no longer accept the view that the appropriate response to rapidly evolving -- a rapidly evolving industry is for the applicable rules to remain frozen in time. the regulatory framework and specific requirements must keep pace with advances in the industry and with industry ambitious to drill in deeper water and geological formations

that have greater pressures. we will continue to analyze information that becomes available. we will implement reforms necessary to make offshore oil and gas production safer. in developing these reforms, we will balance the need for regulatory certainty, whose reports since --who is important we recognize. -- whose important we recognize. drilling plans will not be delayed while these reforms are developed. we must always remain open to improvements in our regulations to develop the necessary culture of safety. in the past, industry has reflexively opposed regulation. that is no more responsible than

the-multiplication of new requirements for their own sake. -- than the mindless multiplication of new requirements for their own sake. our challenge in the months and years ahead is to insure that we do not become complacent, but rather that we continue to make progress in developing safety and containment response capabilities. government, industry, and the best minds in our industries, must collaborate to create cutting edge technologies in the area as such assensor -- such as sensor and b.o.p. operations. it is critical that in the event of a loss of well control, containment resources are immediately available regardless

of the owner or operator involved. these are goals we must pursue aggressively. as an important step, the department of interior is establishing an ocean safety institute. its form continues to take shape. the institute will foster collaboration among all key stakeholders to increase offshore energy safety. it will make recommendations on workplace safety, well intervention and containment and oil spill response as well as training and execution in these and other areas related to offshore energy safety. among the institute's objectives will be developing a collaborative research and development strategy in the areas of containment, say, and spill response. -- safety and spill response.

they will develop a knowledge base for preventing and responding to accidents. they will recommend joint training and response exercises and increased opportunities for communication and coordination among industry, government, academia, and the scientific community. this institute is a key component of a long-term strategy to address the technological needs an inherent risks associated with offshore drilling and deep water drilling in particular. a final, but important part of our long-term strategy, includes continuing our collaboration with our international counterparts. they stress the importance of sharing experiences across

international systems in establishing global standards and best practices. we agree wholeheartedly with that. the u.s. regulators can and should play a lead role in establishing those standards and elevating the safety of offshore operations around the world. we have taken positive steps in this situation. we regulate work with our counterparts. this summer, we hosted a special meeting in virginia to share our experiences on drilling safety. we are also a substantial player in the department of state's energy capacity to initiative, which provides capacity assistance to countries that are become oil and gas producers. we have also increased our by

lot -- batter reached to our counterparts. i met with my -- bilateral reach to our counterparts. the wing forward, it is my hope that we will continue to collaborate with our foreign come apart to give up more -- going forward, it is my hope that we will continue to collaborate with out foreign counterparts -- our foreign counterparts. i thank you for your time and attention.

i am happy to take questions. [applause] >> that was terrific, michael. thank you. that was a most comprehensive walk through from rationale to change. it was very informative. we have a couple of rules in terms of questions. we ask that you wait for a microphone. to the extent that you can, pose your question in the form of a question. that would be most helpful. the collaboration peace is extremely important. we can talk about the budget, because -- about the budget. that will be a question people raise. over the course of the summer, the department had been very

ambitious and forward-looking. there were equally ambitious steps from the joint industry task force. we have moved from a range of legally compliant operations to more streamlined practices grouping. the marine well containment corp. has been set up. when companies apply for permits and they identified their capability to intervene in a deep water well and to contain a spell, how does the sequence of these -- a spill, what is safe enough to get beat per minty -- permitting process going again? >> what operators are required to do is to demonstrate they

have access to act quick -- adequate sub-sea resources. there is no adequate solution for that. we will look carefully and closely at all applications. we have a higher level of knowledge about the institutional solutions than ad hoc solutions. but we will not exclude ad hoc solutions. >> we will bring a microphone out there. right up front.

>> jackie johnson with -- jack johnson with "chemical engineering news." what is the cost? who is going to pay? is there going to be an additional cost to industry? >> we are involved in the discussions and with relevant committees in congress. i care far less where it comes from band that we get what we need. the president put in -- comes from than that we get what we need. we are still operating on a continuing resolution. we are realizing very little of

that money. that stymied us in building what we need to build. i am hoping we can get stronger commitment to resources so that we can build up the capabilities i view as essential. after some encouraging signals early this fall, the budging process scott -- process got stymied. that is where we are. >> i am from bloomberg radio. your comments that the gulf states are tied to the oil and gas industry -- they are

complaining that a oil rigs are going to friendlier places. what is your response to that? is the industry doing what it means to do? are they pushing back? >> good question. activity has not resumed as quickly as industry participants would like, as employees in the industry would like, and as i would like. we have some demanding new requirement and rules that need to be met in order for drilling to resume in shallow water and deep wate. r. we hope that with the consultations we continue to have, we will accelerate the process by which people will be able to get back to work and

that activity will result. i think we have heard before the concern backed -- that there has been outpouring from the rigs. i do not think that has happened. by providing more certainty and greater clarification on what the rules mean, that is providing certainty that operators need. much of this is black box activity. we do not know what decisions are being made by companies and what they are taking into account. we can only be responsive to the questions and concerns articulate it to us. we are doing a diligent and professional job of getting back to the industry.

i think industry has been cooperative. i think we have good dialogue going with them. i think they have different interests than we do. in the past, those interests have been clearly separate. they are now. we are determined to be objective, tough, and aggressive. some of the things the industry may have been accustomed to in the past are not happening anymore. that is a source of frustration. >> on redeployment, there was an additional concern. a lot of company -- companies took a government's word. my understanding that there are at least two rigs that are moving that would have been in the gulf. in the third quarter, other companies will reconsider. it is around the corner a little

bit longer. >> i take it is fairer to say it is around the corner, just a longer block. it would be unusual that we would wait until the third quarter. >> given the extensive reforms that are needed, do you give consideration to the alternative to deepwater production and security issues from importing more crude or environmental issues of tankers? does that factor into your safety calculus? >> it is not explicitly that it into it. our job is to regulate offshore drilling in shallow and deep water and to make it as safe and

environmentally responsible as possible. we do not intend to impose impossible or overly onerous costs on the industry. when i meet with operators, i asked them if any of the rules we imposed are reasonable or misguided. operator, none of them have said they are inappropriate or misguided. they say they make sense. there is general agreement that we are not where we should be. we are getting to be where we should be. we need to change the pace of the approval process. industry understands that. they are somewhat frustrated by it. as we are applying our new rules and guidance and as industry is learning about new roles and guidance, it is hard in the beginning. as we get more accustomed to it,

and more importantly, as industry gets more accustomed to it, the pace will speed up. but when the pace will return to the pre-april 20 level, the honest answer is probably never. >> i am with energy daily. director, i heard you speak about the congressman's role today. i wanted to ask you about that. in the commission's report, there is a criticism of congress, the parts that claim to have jurisdiction over oil and gas drilling the claim is that there are too many cooks in the kitchen. do you agree? you think that congress should streamline its oversight? >> the truth is, have been around a relatively short time frame and y have not had a deep immersion in dealing with -- and

i have not had a deep immersion in dealing with these issues. if i have experienced confusion and problems, the commission to study this very closely and they almost surely have the basis for that. in terms of my personal experience, i have not yet seen it. if you come back in two months, i may have experienced it and may have a different answer. but after the first few weeks, i was in office in which i testified, i have not had a lot of contact with the various committees. i do not know if that is going to be a problem for me or not. >> one of the reasons we agree to -- we can get speakers like michael to come here is we set timetables. questions of all. . will take one from the side -- we will take one from the side. this second row on this side and then the front. >> i am in post graduate school.

this was an unbelievably impressive story and you told it really well and i find storytelling really important in this sitting. >> thank you so much. [laughter] >> well, you are standing out compared to a great many other leaders in this. >> thank you. >> with things like this, the devil is in the details. part of my question is, things are not quite right. it will people be rewarded or punished for saying we ought to look at this? is there a mechanism in place that says we want people to let us know what is not happening? i think the cultural aspects of that can make or break where you are trying to do. i guess my question is, how are you doing that? >> it is a very perceptive question. i think the most difficult challenges one faces when you try to remake in agency or the cultural changes you are talking about, particularly when the

locus of our operations is over a thousand miles away in the gulf of mexico. the best thing to do is to communicate with people and the organization, let them know that whatever their past experience has been, that the leadership of the organization is open to the insights and observations and welcomes them. one of the key guiding principles behind developing the of the mentation teams that i talked about was to include a large number of -- develop the -- developing the implementation teams i talked about was to include a large number of experiences. there were no limits to the thinking, suggestions that we would consider. i hope that inclusiveness in that process has made people feel that their views are truly welcomed, that their voices are from being heard -- are being heard and the suggestions for changes in the operation areas

that they know best have a decent chance of being adopted. i have spoken to all the members of the inundation teams, letting them know this is my highest priority -- of the implementation teams, letting them know this is my highest priority. they have been very responsive on hold in making progress, meeting milestones, and showing that they are engaged in the process. >> the third row, white shirt. >> you mentioned one of the teams is working on regulatory enforcement, specifically the process for evaluating operator qualifications and the system for barring unsafe operators. the commission had said that a company's safety record ought to be considered when the government is considering leasing them public lands for offshore development.

in a -- and a bill that passed the house last year specifically would have barred companies with poor safety records from bidding on leases. can you give a bit more detail what you are considering? >> we are considering the full range of options. from among those is considering the safety record of complete -- companies, but it is a much one comprehensive examination than that. we really do not have a coherent, consistent enforcement program, nor one that, to my mind, is sufficiently aggressive. what we are doing is looking at things from soup to nuts and figuring out how we can figure an enforcement program that realizes and achieves its regulatory objectives and, certainly, figuring out whether there ought to be consequences and what kinds of consequences for serious predatory violations is on the menu. -- regulatory violations is on

the menu. >> i am wondering if you can update us on the status of the specific environmental assessments for deep water that the bureau has been working on. >> they are ongoing. if we have a number of them that are in process right now. i do not recall the number. i think it is well over a dozen that we are currently working on. more.'s take one right here in the back and mittal. -- middle. >> is there any update on the increased number of inspectors and you are going to put on the industry? >> some of you know we had a very aggressive recruitment toward that i did in october and early november. we went to a number of

engineering schools in texas and louisiana. we had a job posting that was opened that was timed coinciding with the reporting to work and quite surprisingly, we got 550 applications, not just for inspectors, but for the inspectors and petroleum engineers. unfortunately, the process takes too long, an blogger that i would like, but we are already well in the process -- and a blogger that i would like, but we are already well in the process the ability to proceed full speed ahead is stymied by the uncertainty of the situation, but we are doing the best we can with the resources available. >> michael, thank you so much. cough if you would all join me in the thanking michael bromwich. [applause] [captioning performed by national captioning institute]

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>> because we don't want going

to that. but the goal is to use more information intelligence, which will limit the number. we need to resolve the anomaly. i will say we've had a number of instances where things have been found, concealed, on individuals since we've been using a.i.d. whether from -- which would not show off the metal detector. >> touching upon the last point when you went to the e.u., in your discussions earlier you talked about from the curbside to the cockpit, how do we get other countries, e.u., other countries that may not be as friendly to us, a lot of the attacks have been more internationally, with international standards or something akin to that. >> one of the key positive

elements from a christmas day attack last year was for the international community to come together. really under the auspices of the central office. in october a few months ago, part of the u.n. passed a resolution, a security resolution for all 190 countries flying, agreeing to minimal standards for recognizing that. the meeting i mentioned that we hosted, included e.u., include other key partners, including international association which represents all the arlen specter partnership will see other initiatives coming from, just for example, we spent more than a day on security matters. is just a once every 30 year meeting. the prior triennial meeting spent i understand there were 22 minutes on aviation security as

opposed to safety and environment and all those other things. the international community has come together in unprecedented way. >> having lived through total information awareness at dod, i feel for you. what are some of the stakes we made? one come have you easily build into your waiting process some kind of public policy advisory group, because for the practice of structure and the pyramid -- it was killed on hill. and secondly, having gone to the national airport on thanksgiving, four hours early, nor was there. you scared them all away. and i wonder, -- [inaudible] >> first day of the liquid. whenever it's the first -- it's

the shock and lack of anticipation i think that disturbs people. >> i'm picking up on that last point. you've been wonderfully opened today in your remarks and candid, and i thank you for that. and shared more than i think we are used to about specifics in terms of what your looking for and how you go about. and i'm assuming that was a conscious decision on your part, which is alone in contrast to the usual instinct in washington to hold things close to the best. i'd love to you just a word or two about that. >> will clearly, with 1.6, 1.7 million passengers traveling everyday, to be successful in our mission we need to have the buy-in of not what the traveling public, but those who follow the industry and look at things. and number of issues about

thanksgiving in terms of not wanting to tip off the terrace as to a new procedures, but other ways we can do things, i am encouraging a healthy, vibrant debate and discussion about okay, what are we willing to do in terms of exchange of information for perhaps less physical screening. and so that's why i'm interested in that discussion and debate, and make sure that not only the general public has an opportunity waiting at all associations, trade groups, obviously the hill, everybody that has interest in this issue has an opportunity to weigh in. and final analysis and decisions we made, making sure we are always protecting privacy and civil liberties and provide enough possible security. >> thanks, greg. please join me in thanking john. [applause] >> as part of our process of thanking you, we have sort of a quiet moment.

we have a law sourcebook which the committee put together. usuu keep on smiling like a rose. but now we can see maybe you can smell like a bottle of chanel. >> there you go. >> we appreciate it very much. [applause] [inaudible conversations]

>> now federal reserve chairman ben bernanke and ahead of the federal of the federal deposit insurance corporation sheila bair talk about financial regulations and small businesses. this fdic forum is three hours. >> good afternoon. i'm steve liesman and i really have the honor of being here to introduce a distinguished panel to talk about a very, very important issue here, the issue of small business and lending and getting small business back on her feet so we can get the economy back on its feet. i just want to give a very personal note that it's not only

an honor for me to be moderating the panel, but to do so at the -- excuse me one second. i want to take that out of my ear. to do so at the william siegman center. it was more decade ago than i want to admit, i began covering bill seidman and his work at the resolution trust corporation and two decades later i got to work against with bill seidman at cnbc what he was a valued contribute and help people really guide them through the financial panic that we had come and he was a very dedicated public service and want to be here at the siegman center. and i want to introduce now our panel, beginning with federal reserve chairman ben bernanke. the junior senator to you would never know from looking -- sorry, the senior senator from virginia, mr. mark warner, senator mark warner. the chairman of u.s. chamber of commerce tom bell. and then we have skipped here

leaving the best less, the chairman of the fdic and our host this afternoon, sheila bair. join me in welcoming our panel. [applause] >> good afternoon, everyone and thank you all so much for coming here. we've got an incredible group of people. i was looking over the registration list yesterday and i'm so pleased. represent the very best in government as well as the private sector. we are all here today because we share the same concern, what more can be done to kickstart a tepid recovery and weak job market. as the biggest workers small businesses might hold the answer. some small businesses say they are now finding it easier to get loans and to expand and hire new workers. recent surveys to confirm the standards are small business loans have improved in recent months.

but many small businesses still complain of tight credit conditions and the inability to get loans and we are not quite of the woods yet. so what are the obstacles of small business lending and how do we overcome them? my expectation is that by the end of the day not only will we have a list of the obstacles, but we will also have some concrete solutions. fortunately, for all of us would've the right person in the right place at the right time to get the ball rolling. there is no greater advocate for small business better first speaker, chairman spencer bachus. he is the name regarding a small business by the national federation of independent business is, and he received the spirit of free enterprise award from the u.s. chamber of commerce. we worked closely with chairman bachus over the years on a number of legislative and regulatory issues, including important reform to deposit insurance system. and i know we will continue to work closely in the months ahead. he's a good friend, and in addition we are like minds on

the urgent need to head off the next potential financial crisis by restoring fiscal responsibility in washington. both spending and debt our way out of control. as the new chairman of the house financial services committee you will be in a unique position to tackle these issues as well as the credit problems facing small businesses. i'm certain all of us will be most interested in what the chairman has to say, but before we get started let me first hashed a very important question, which are you more happy about, winning the chairmanship of the house financial services committee, or your beloved auburn winning the national championship? thank you very much. please welcome mr. bachus. [applause] >> thank you, sheila, for that kind introduction, and particularly for the war eagle. we had to rehearse the war eagle. and i thank you for organizing this forum with important

stakeholders on addressing a question of how we can promote lending to small businesses. and as the chairman said, it's important to do that because small businesses create most of the jobs in america. and job creation i think is the challenge that is facing our economy as well as our financial institutions. i talked with a banker from arizona the other day, and he said what is hurting our bank is people losing their jobs, or not having jobs. as we address the issue, it is important to be clear about principles that should guide us. and reading recently, i came again across the phrase american exceptionalism. this encapsulates what i believe about our country, our economic system, and most importantly our people. we do things her own way and it works. as we craft policies to promote economic recovery and create

jobs, we need to remember that free markets of capitalist system and individual initiatives have made the u.s. economy the largest in the world. twice as large as that of china, japan, germany, and great britain combined. government planning and government control is not how we got here. individual initiative and free markets have long been the recipe for our prosperity and dynamic economy. unfortunately, the new regulatory structure of dodd-frank will redefine the way our economic system and a financial services system operates in the future. constricting jobs and punishing main street businesses that did nothing to cause the crisis. during my conversation with employers, i'm constantly told that one of the biggest obstacles they face right now is

obtain financing from banks. the search for sufficient capital is a struggle, even for companies with good credit history and long-established relationships with local banks. the majority of small businesses depend on their community banks or credit. this morning chairman bair said that while failures peaked in 2010, the fdic losses were down because small institutions were failing. the fact that smaller community banks are failing can be partially traced back to government policies. that gave far too big to fill institutions, in my opinion, a competitive advantage. the fact that community banks are failing will have disastrous impact on small businesses going forward. because the small banks are more likely to extend credit to small businesses than the big bang counterpart. as the federal reserve study

said, the findings suggest an abort role may remain for community banks who have an advantage over large banks of extending loans to small businesses. their local roots and knowledge of the local community and the entrepreneurs who run local businesses may be critical in providing the type of relationship driven loans that many small businesses need. we all know that inadequate underwriting and loose credit standards contributed to the financial crisis, but the pendulum swung too far toward regulatory micromanagement. we can't allow arbitrarily applied regulatory directives to stifle prudent lending. i applaud the six regulatory agencies all represented here today, led by our host, the fdic, who, back in february issued joint guidance telling their examiners to stop

second-guessing banks loans. the guidance said quote, prudent small business lending will not be subject to supervisor criticism. sadly, that guidance is not always filtering back to the operational level, as indicated by the constant stream of comments i and my colleagues, both republican and democrat, received from community banks and a small business customers. the guidance is being offset by examiners and other regulators in the field who has not followed the policies promulgated by the agencies in washington. but continue to be overly restrictirestrictive when evaluating the court decision of those they regulate. this has become so commonplace that it has become known as the mixed messages problem. instead of folks, patterns and practices that suggest poor underwriting or lacks risk measure, some examiners are micromanaging the daily

activities at our committee banks. all of us in washington, both in congress and at the agencies represented at this forum, must continue to examine the mixed messages being sent to community banks, which continue to create uncertainty and emptied recovery. under my chairmanship, the financial services committee will focus this year on policies that encourage not inhibit job creation and facilitate a robust economic recovery. our focus will be to ensure that hundred, or over 300 of new federal rules mandated by dodd-frank be written in a way that does not further indeed job growth by burdening america's small businesses, in a sea of bureaucratic red tape. this time of economic and regulatory uncertainty requires all of us to work together, and a spirit of cooperation to avoid policies and regulations to

prevent critical investments by our small businesses. we all recognize the importance of consumer protection and the need to avoid the kinds of mistakes and malfeasance that led to the financial crisis that culminated in 2008. nonetheless, we must take great care to ensure that we are adopting policies and regulations that grow our economy and create jobs. in order to do this we need to look at the ways regulations are being implemented, especially now that the regulators are writing over 300 new rules. with prudence and careful attention to unintended consequences, rules can be written that achieve the consumer protection, safety and soundness needed by our society, but does not slow economic activity or prevent job creation. each of us understands that any robust job creation must come

from the private sector. our small businesses will be key to that recovery, and washington should do its best to send -- set strong guidelines and let our small businesses flourish so that they can create jobs. as larry kudlow said in an introduction to a recent book, taxing capital at prohibitive rates is akin to attempting to of capitalism without the very capital that makes it run. how does the average worker get a job when business cannot create jobs he does they are starved for capital? me economic thinkers understand this -- do not understand that capital and labor work together. what he said about overtaxation is also true of overregulation. it in the way is a form of taxation. thank you, chairman bair, for convenience important forum. and i look forward to working with you and chairman bernanke,

and my senate colleague, as well as other interest groups, including the chamber in promoting job creation, something that we all agree is so important for our country and its future. thank you. [applause] >> thank you, congressman bachus. to my pale, the list of problems is long and the time is short so let's get right to it. a recent survey, 33% said the number one problem is weak sales but i think that's what the elephant in the room. but before we dive into these issues of regulations and how to make lending feature, let's talk about the economy, mr. chairman to my immediate left. what are the prospects of the economy steps for this year and solve some of these problems we are talking about?

>> first of all you're right about the sales issue. the sales come, that will make it more stronger, creditworthy, a virtual circle. we see the economy strengthening, better in the last few months, and we think the three to 4% type of growth number 42011 seems readable. that's not going to reduce unemployment at the base we would like to, but certainly it would be good to see the economy growing and that means more sales, more business for companies of all sizes. >> and that because each of for small businesses to get loan, you called the virtuous circle? >> that's right. more casual and also higher collateral values makes businesses more creditworthy, gives them more credit demand, allows them to expand and hire, the virtuous circle. >> i would agree with a. i think economic recovery is key. as sales pickup come and small businesses strengthen their demand for credit will increase.

the banks willingness to live because the credit worthiness will be enhanced. it will be a virtuous cycle. i think big collateral value question is a key one. but one for according to a study, about one in four small businesses have financed themselves either through home equity lines or using home equity collateral. still a question about where we are with the housing market and home prices, so i would say that would be another caution but i think the more we can do to get the economy going again the more will help small businesses and banks lending to small businesses. >> senator warner, with all due respect, would you comment on the danger here that the economy comes back, sal some of these problems the government remains proactive, perhaps to private and does things that economy should be doing itself. >> there's one thing even though the economy is recovering at a think any of us are going to expect the american consumer to continue to kind of carry the

whole burden on their back. one of the hidden good things in this recession we have been cutting back on personal debt levels which longer-term, gives us a burden. whether things will have to continue to grow this economy is look for export capabilities but unless we continue to see battled domestic growth but export growth i don't think we'll see the kind of level of recovery would like. certain things that we have been doing far around the edges, particularly on small business credit, legislation was passed last fall, probably should've been passed earlier that was helpful around the edges, whether the increase at the sba, whether capital access program in the banking committee actually has been very supportive of, and certain other things we can do to help credit to small businesses. >> tom, i don't mean to put you on the spot but that's i'm going to do. given your fellow panelist you're right, on balance would you say government is making things easier or harder for small business to create jobs?

>> well, thus far i think over the last couple of years both the legislative and administration, it's been more difficult. uncertainty creates an environment in his business committee, it's hard to make decisions. when it's hard to make decisions is hard to invest. you can't underwrite, you can't invest. but i think things are getting better. i think we've seen a change, certainly sort of initial commitment of figuring out how to get the job done, and the job is creating more jobs. and in an environment where small business can attest, reinvest, succeed. and i agree with the other panelists. and by the way, chairman, i appreciate you inviting me to the pale to talk about where we are as opposed to where we are going. a nextel talks about the solutions, right? we just talk about the problem. i was hoping that was the case. >> you don't have high expectations. >> chairman bair, you talk about this issue of collateral. is there any, something i have a

whole list of questions from the audience, a very key issue, just describe what that is that people cannot get loans because the value of the collateral has declined. and good viable businesses, is the role the fdic can place because we have with the fed's leadership and occ and odious, the other banking regulars, some things we try to address inner guidance, at least with regard to refinancing of a restructuring of aston realistic commercial loans. we do not want our examiners criticizing an otherwise credit where the loan because of federal declined. even if they're underwater at that point with alone at the bars are repaying repaint loan, have capacity to repay the loan, we don't want that don't criticize. i think we have to -- we want to avoid that. so we have to address already. that said no small lending it is

high risk forms of lending. it is generally collateralized or to extend home equity has provided the collateral, those evaluations are down, this will be a continuing problem. we must focus on the borrower's ability repay. spirit hasn't helped? >> i think it has. you know, we get mixed input from banks, and i know there's some banks and some loans that does not -- if you have a situation we don't think that policy is going to apply, i want to know about because we are trying very hard to make sure we follow through. >> senator warner? >> i would agree with what chairman bachus said. we are sending mixed messages. on one level we want the banks balance sheet to get better, on the other level we are telling them to go into more lending. whether you're a lending officer or you're a bank examiner, that's just human nature wise

pushes you towards more conservative. i think what we're seeing in this recession is we've gone way past the normal wash out a small businesses that normally get out in a recession. we are cutting into businesses that have long-term track records. and as anyone as mentioned here, cash flows down and your collateral value is down. it's tough short of some of his and criminal sba cadillacs is programs and other things that can help around the edges. one of the things i want to kabul at chairman bair on, something we talked about a couple months ago and she's kicking off today and hope that they can join as well, and that is if, i get this kind of calls or letters everyday, i've got a borrower saying their community based bank is saying they can't make the loan because the regulator is saying no, and the fdic is set up a helpline, toll-free hotline, if you're a borrower, if you feel like the regulator is overbearing, and

this may put kind and incentive back in place for the regulars to back off a little bit. i think it's one thing speak and you what chairman bernanke to help? >> i would love for him to join on that as well. >> first of all, the federal reserve has had an ombudsman since 1995. if you have an issue, your bank and you think you're not getting fair treatment, and your award, for some reason about complaining to your examiner then call washington, we will respond to that. ..

we have to expect that we have to work that system. is not just what happens in washington. it is what exists in the business model. >> collateral can be a substitute for good underwriting. you don't have to do a careful understanding of the business itself. collateral value is down when you look at cash flow and prospects for the business. then you have to do a lot more work. that is what we want -- >> i am the guy who has to ride on the memo's you put out. bit of the hair i lost is as a result of understanding the interagency memos that say on the one hand land and on the other hand conduct prudent

banking. what do you mean by that? can you help me out? >> we have to have a balance. we got in trouble in the first place by making too many bad loans. we need creditworthy borrowers. but we can do that if we put in the effort. we talked about community banks. one of the advantages of community banks is longstanding relationships. they understand the business better than other people. that is why community banks have stepped into the breach to some extent were bigger banks have pulled back so there are substitutes for lazy lending which is the hard work of understanding the business. >> i don't think they're inconsistent. a bank with a strong balance sheet does a better job lending and we have seen that. the lion's share of lending that we were discussing earlier, large banks are down by almost 40% during the crisis. community banks went up mostly

4%. the lion's share of that is the council of community banks. it helps your ability to lend. that is what japan is. you have troubled loans on the balance sheet. they have to be worked out. then they are written off and you need to add capital fees to the process. it can't be ignored. it is harder but this is a better way to do it. now look at the credit worthiness of the bar were and the cashflow, not just the underlying collateral. you need a strong balance sheet to land. >> laurie carter from springfield rights in i have a government contract and been denied loans from six banks because i do not have collateral. what do you say to a person like that? is a role for senate or congress

in that? [talking over each other] >> you get a little bit of blame passing the loan officer who is nervous getting pressure from management that we need to be tighter on our lending standards and the loan officer blamed on the regulator. we are trying to rebalance a little bit. human nature. everyone went too far one way and we're moving back but the notion simply that -- and don't think anyone would say just because you are not a government contracts and how we give some level of guarantee that means you will get a loan. they're still needs to be -- >> you talked about this idea that the market has to run its course. does this seem like a market that should be about to run its course or in that instance is there a role for government to grease the wheels or make something happen that ought to happen? >> the government is notoriously

slow. i am not sure -- [laughter] >> i don't think it is an either/or situation. >> your advice is to get out of government work. >> it is hard to change this inherent feeling that the lending officer or his superior has that we need to be awfully careful because look how close we came to falling over the edge. we survive the but we won't make those mistakes again. the biggest issue i see where the government could have a significant impact and have been slow to act is to do something about this continuing and i mean continuing well into the future real-estate issues that we have and it has not been dealt with. if you look a lot of small business loans, the underwriting as the chairman suggests is not done so collateral is no longer good and it is not getting

better. >> let's ask -- but ask the chairman of the federal reserve. is there anything you can do about solving that collateral problem? >> worry are working hard on different fronts. we bought a few mortgages for example. trying to get the economy going. we are working with our colleagues in other agencies to improve our work outs of troubled mortgages both residential and commercial. we did a survey of commercial real-estate workout practices before we did a commercial real-estate guidance and before and after. we have seen increased work outs. that is part of the process but it won't happen overnight. the economy will come back the confidence has to come back. higher utilization rates.

more people can qualify for mortgages and so on. it is a slow process and one of our key goals. and 4 ben bernanke. >> there's talk about whether or not both entities should do more work in the secondary -- there's no place to on sale these loans once they come out. is there a word for the federal reserve hoping to restart the secondary market for loans? >> the federal reserve did have a program which was really an attempt to get the secondary market going again for commercial real-estate and mortgage-backed commercial mortgage-backed securities as well as other loans including small business loans. we have worked on that and all the agencies are working with the dodd frank to restore the functioning of the secondary

market. obviously the biggest problem in some sense will be the fannie and freddie reforms that have to come at some point which will be critical to reestablishing the residential mortgage market. >> as bad as things got it would be a lot worse if the fed hadn't stepped in. the secondary market -- virtually vaccinated. this is particularly challenging and some other categories to securitized going together to talk better standards to bring the market back in a way that will define economic incentive and assure high-quality and transparency from investors buying those securities but that will take a while. >> another issue that is raised time and again is dodd frank. the regulators to your right arm busy every day creating new

rules and not certain what those rules are going to be. to what extent you feel dodd frank has made banking more uncertain and inhibited the granting of loans to small business? >> i was a big part of riding title 1 entitled 2 in terms of systemic risk and the revolution process. i felt we struck a pretty good balance. i can tell you i got as much criticism from the left. the bill did not go nearly far enough to let the banks of too easily as i got criticism from the right that it went too far. a lot of tough questions were posed -- i would at to the request of the financial industry because i am not sure necessarily what specific regulations on derivatives and so forth. but again as we talk about -- particularly as we talk about

smaller banks, a lot of the tougher parts of dodd frank exempt those banks under $10 billion on assets. by having the requirements from our larger banks in terms of contingent capital and funeral plans, higher capital standards, if we do it right, the jury is out weather we will do it right, can level the playing field a little bit so that those community-based banks don't have the inherent disadvantages that large banks have. i think it is a working progress. if you look at our european and asian partners they're glad america went first. you will see they will go as far if not further and at the end of the day if this is a properly implemented it is a good framework going forward. the alternative, for the audience that doesn't know my

background i spent 20 years in capital markets, i have been in business logger that i have been a politician so i got into the belly of the beast of the baking committee and saw how close we came and history will treat president bush and ben bernanke candidly with a lot of respect. the amount of access in the financial system is outrageous and the notion that the status quo could have been continued and don't think would be acceptable. >> it is a bad bill with never-ending unintended consequences in our view and, status quo is fine? >> it wasn't obviously. four years in advance of that we put together a bipartisan group to figure out what to do. we were not suggesting do

nothing but maybe 500 rulemakings if you're going to go well into the future with unfunded mandates or my colleagues here, if the people to my right had been allowed to said in a room and write a piece of legislation-we would have ended up in a good place but this is a smorgasbord. i think it is a big mistake. you talk to bankers and i talked to several and have been on several bank boards before this meeting and they say we don't know what impact is going to have on our business and we won't know for some time. that has to make it somewhat reticent to invest in their future and make decisions that are long term because they don't know exactly what the environment is going to be. >> it is fair to point out that you are not responsible for the mandate given to you from congress but you have to fulfil them. what is your response to the criticism that these rules that coming out could put a damper on bank lending?

>> it is really important to address these problems that had to be addressed. the too big to fail issue is one that created all kinds of moral hazard and lead to some really bad outcomes as you know. so we had to fix it. maybe it was ok for operating on the patient while still running around. difficult in that respect. there was really no alternative but to increase capital and apply additional rules and so on. we are doing our best to be sensible and make rules that will work but not impose excessive burden. in particular i agree with senator warner that the thrust of the bill is that the largest too big to fail banks. we should do everything we can to minimize regulatory burden on smaller banks which don't pose any systemic risk. the other thing and this addresses mr. bell's, and it will take time to put these into

place and implement them and so on. but the faster we can do it the more accurate we can't be in our communication the better off we will be with the uncertainty he is concerned about. >> we could have a long conversation. let's remember where we were. we came to the press not just american economy but worldwide. we had over half the financial sector totally unregulated. every industry has a percentage of black magic but the percentage of financial alchemy created over the last decade alone, that even the financial leadership including regulators were not aware of the current state of risk exposure, there needs to be some level of oversight. should it have been -- i wish we could have done it in a more incremental way but when you get that kind of shock, when the american taxpayer rights and $800 billion bailout bill that want to make sure -- we try not

to have that again. we have not had a major rewrite of the financial rules since the 30s. i hope this will send a test of time as long. there will be uncertainty but many of these parts of uncertainty were because frankly even if congress tried to get more derivatives i don't think we had the expertise and to certain degrees we needed more expertise from regulators. i'm not sure they even had at this point to said those rules in place. >> if you could respond to that as well as that other minor thing going on. errors additional uncertainty. >> it is primarily geared toward the larger institutions. i would echo almost all of this is geared toward larger institutions. with derivatives, regulations and trading, securitization, these are activities where the lion's shares done by the

largest institutions. all the regulators to the point of working hard to make sure there is negative impact. small business loans account for 40% of small-business loans made by institutions that are extremely important areas for small-businesses so we're cognizant of that and want to make sure it was to try to level the playing field and remove competitive disadvantages of smaller institutions like too big to fail. i would also say the pain that the entire economy including small businesses have suffered as a result of the financial crisis is so much more dramatically profound that incremental uncertainty as we work for the regulation to provide more stable financial system but at the end of the day you always have cycles. i never want to see what we went through in 2008/2009.

if it hadn't been for that crisis in the recession we would not be talking about credit availability or how much this is hurting or impeded job growth. let's not lose sight of the long term which is greater financial stability. >> the federal reserve, 40 meetings around the country trying to get to the bottom of the issue of small business lending. you had a 20 page report recommend to anybody interested in this issue. is actually readable. has plenty of anecdotes about individual business -- >> we will rework it for you. >> it is great. leave it as it is a. if there's one thing out of that report that you could change right now that would make small business lending takeoff, what would it be? >> the report was really about out reach. we had 40 meetings, a capstone

last july in washington. we listened to small-businesses and lenders and examiners, legislators, tried to understand the situation and look for recommendations and ideas and i think it was very hopeful that it offered specific recommendations like helping small businesses get more technical assistance to provide more complete and understandable application. that was just communications and a way of getting more information and making it across a better one. it wasn't really a set of new proposals. was just listening. that is one of the most important and we are doing, listening to those meetings. we have a program called ask the fed. there has been called in by banks and bank supervisors, thousands of called in to listen and hear about our various guidances and programs. we added a new council of small bankers that meets with the federal reserve board directly three times the year.

listening is really important. that is what we have been trying to do and based on that, we are going for this objective of getting that balance which is on the one hand we don't want banks to make bad loans. nobody wants that but we do want businesses that are viable and have good business plans and lots of experience backing them up to get loans. that is the balance we are going for. >> you want to take a crack at that? is there one thing that the forces should concentrate on that will make a meaningful change? >> three things you could do immediately. one is pass the pending trade agreements coming before congress. that is the number one market expansion opportunity for small business and frankly all business. if we could get that done, senator warner is in the right place on those issues. we have more and more in congress moving in that direction. that is one.

the regulatory tsunami that we are facing is very difficult. if you want to create certainty in a business environment they have to know what the rules are. you can't underwrite risk without rules so we have to limit that to the degree that we can and keep the tax rate as low as possible particular on that small business community. >> senator warner? >> i agree on a macro level on the regulatory burden. i have a proposal where the headline is regulatory pay go. if you at regulation you will take one away of similar size and shape and before we say it can't happen the u.k. started to implement this and of all places the uk packed america in terms of international competitiveness. if we had done some things around the edge, legislation i referred to, the fda today is different from your

grandfather's fda. it is more aggressively pursue a more active organization. $12 billion in loans since the end of september. there is a program called capital access program, 25 states have. to create losses for these more marginal loans. not administered to the government but the state and banks. there is a bigger issue. i don't have the answer but i would love to have another session. somebody who used to be in the venture capital business. as we move towards more and more financial engineering and the ability within the banking sector to make money through financial and engineering as opposed to lending to companies of value, who really wants to take a tough job anymore? that is why it has been pushed down to a lot of our community banks as far as early stage

lending. meinhold industry has gotten so large that nobody does that very well. when we cite these statistics appropriately, disproportionately those are the firms that grow very rapidly. not the butcher shop but tire fixed in place that is so important but until we can think more creatively about this, we won't see the kind of job filled recovery we need. >> there was an op-ed in wall street journal that pointed out is not jobs at a small business that create jobs but new business that creates jobs. if the emphasis is misplaced it is about venture-capital and start up businesses, not small business. >> i don't want to overtalk but angel networks have disappeared. the larger venture-capital businesses due early stage rounds that have gone multibillion-dollar funds and there are certain things we have

done around tax policy in terms of no capital gains and firms under 250 grand but thinking more aggressively about restage capital is an area of would love the panel and anyone in the audience -- >> number one venture fund -- [talking over each other] >> no startup business -- >> we talk about loan balances, $2.3 trillion in used credit lines during this crisis and some of them will hopefully come back as the economy recovers but a very small startup gets things started and credit has been some fairly contrasted as well. we started with an improving economy that will self correct. >> can you square the circle for me? the federal reserve has flooded the system with excess reserves. there is a ton of money for banks to blend and yet they're not lending. how do you fix that problem?

>> we have to make the banks stronger. they are strengthening and getting more capital. leveraging is getting a slowdown. lending is starting to improve. the second is the regulatory environment. we have been talking about getting the appropriate balance, prudence and making those loans. it has been a tough couple years, no question about it. small-business lending has contracted quite significantly. small-business lending has contracted less at community banks and we talked about before. also less than healthy banks with strong capital that is better able to land. my sense is we are in position where we are starting to get some improvement. 2011 will be a better year for small business lending.

certainly the supervisors and monetary policymakers will support that. >> we look at data anecdotally, senior loan survey officers, do you see some volume in the markets? >> in terms of small business lending, we have survey of loan officers which is showing there is no more tightening at this point. some easing including small business. we have surveys from the nfib which has shown some optimism and credit. we have a lot of anecdotes information we're getting back which suggest some improvement. we follow the data on smaller loans which are not exactly the same as small business loans but we give them some sense. overall a very tight situation. things have stopped getting worse and are looking a little better. as the economy improves you expect to see better lending going forward. >> what are you hearing?

>> we think it is turning. the profile indicated relatively stable the first time we haven't seen this quarter over quarter decline. it is starting to turn. credit quality, we have delinquencies, those are all things that improve the bank's balance sheet capacity. there's a lot beyond our control but if things continue as they are it is getting better and activity picks up. >> it seems everything came together and congress got a few things done that they were waiting to get done. are you hearing the $30 billion program as well as what happened to depreciation is having a positive affect on the economy? >> i have not heard as much in terms of the small business plan. i don't think a lot of that has been taken up by real questions

where the banks take it up in the first place. i think the fda and $12 million in small business tax cuts, this is the bill that took place in september and the capital access program which could be leveraged 15-1 -- possibilities and all of that. incrementally helpful. i don't want to discount what she lot has done with this help line. as tom pointed out we are fighting human nature with the pendulum going too much. nobody wants to mention forbearance. we don't want to go there. this mixed message of land but be held the, regulator is causing this problem.

the fact that the borrower can do the help line might make that regulators think twice about -- could be helpful to us. >> examiners have a tough job, thank you for acknowledging, make me not really want to make the loan. this is important information not only to help you. the way we track consumer inquiries. we look at that more deeply. >> it is getting better. the activities in december, we will have a very positive effect i think on the overall economic

environment particularly with regard to small business, confirming the tax rate even though it is only two years, that is all the way a small business can see any way and hopefully make them permanent, but depreciation and other things done over the last several months by legislatively and administratively. definitely improved the environment. i expect lending to improve substantially through 2011 given the demand. the big issue is the man. i don't think the lending environment is the problem. >> continue to oppose dodd frank now that there is a new -- >> we will try to improve dodd frank through the legislative process and the rulemaking process.

at least 300 rules i think there were 16. that was fairly disruptive and this is really something. through the rulemaking process adjustments legislatively, we can come up with a solution that works for everybody and is embraced or further embraced by the business community. we don't like what we have got right now. >> do you want to do it in memo form. >> if it wasn't for these two people and their organizations people like senator warner and courage to vote for some very difficult situations. more and more of the business community realized today this was a very close call. some courageous people did some things that were not universally supported. we got a lot of criticism from our membership and various parts of the membership, supporting some other legislative initiatives, it was the right

thing to do so now we have to come back. .. >> the financial system's really important. that's why we don't want to strangle it. we want to make sure that it's safe, we also want to make sure that it does its job. so we're trying to strike that

right balance. you mentioned basil iii, by the way, before. that's another set of complicated rules, although again at the most complex institutions. personally, i view i basil iii and dodd-frank together. you put them together plus the rules on resolution and activities and so on, together, i think, they do quite a lot. but we understand, again, the burden. so we need to write the rules in a way that is workable, is not going to constrict activity, and secondly, we do have to move as quickly as we can consistent with getting it right because we don't want this to be hanging out there for a long, long time and just, you know, we talk to the bankers, and they tell us, look, we can live with all different kinds of stuff, but just tell us what the rules are so we can go back into the game. i think that's important to do. >> i think i have it bad as a

journalist, how many dead lines do you have coming up? are you going to make them? >> we've got an elaborate project management system at the firm. it's a big job, but, you know, even regulators have productivity gains, so that's what we're trying to do. [laughter] >> steve, the only -- before we -- i have tremendous respect for the chairman, but before we shed too many tears, anytime we try to take anything away from the fed -- [laughter] that wasn't quite the same reaction. >> making sacrifice. [laughter] >> chairman bair, would you comment on the issue of the commercial for overdoing it? >> listen, we've all launched transparency initiatives. we have an open-door policy, people want to meet with us. we have a time table on our rule makings. there is a publication process of comments for a formal rulemaking, but if someone coming in outside the rulemaking process, we disclose that too.

we don't discourage that, we think it's fine. we want people to engage with us, we want everybody to know who we're talking to ask the kind of -- and the kind of information we're getting. we've scheduled round tables, webcasts, we bring experts in to talk about our rules to help us this development phase, so i think we're doing everything we can to get good input from the public that's impacted by these rules as well as the industry which needs to deal with them. and i think we're trying to be balanced and fair, and i welcome congressional oversight. i think that's a healthy thing, but i would agree with ben, we need to get on with it. and i think we do have a very resilient financial system. they just need to know what the rules are, and they can adapt to it. >> 1245r9 warner? >> i just have to smile a bit because i've had leaders of some of our major financial institutions come in to me in the last two months since dodd-frank has passed and said, you know, mark, we've got to move this stuff along, move this

stuff along. and then i sometimes remind them it was your folks who were saying we actually needed two years of study before we put that regulation in place when the legislation was going lu. i do think the sooner we get it done the better, absolutely. but this is a -- again, i spent 20 years around the financial sector before i got involved in politics. it had moved so far beyond my knowledge level, and i think real legislators' knowledge level. this is opaque, complex, and i hope more transparency, i mean, it would be with great if we had a few more real engineers as opposed to financial engineers this this country. [laughter] you know? and we set up a system that allowed financial engineering to create paper value rather than value where we actually create an intellectual capital and make things and do things, and i'd like to get back to more of this. and part of this transparency, i think, underlies and tries to

level the playing field with these enormously large institutions will long term be viewed as a step in the right direction. >> tom, did the market create these financial engineers, or did the government create them? >> you know, the market. i mean, the government had a role to play, a per missive role, i would say. when you have astrophysicists designing financial products to be sold by bankers, that's probably a bad recipe for, you know, sustainability. [laughter] i think, you know, you talk about overreaction, and there's been overreaction. but i would have to say, what would you expect? because the over abundance or however you want to describe it on the other side which created the problem in the first place was at least as far as to, say, the right as this is to the left. and we just have to come back to

the middle. and i haven't heard anything here today that suggests that we're not moving back towards the middle. and, you know, that's good news. >> so you're optimistic about the drift of the government in this regard. >> i am. temporarily optimistic. [laughter] >> that's a news flash. >> get that on tape! >> chamber official says -- chair bernanke, i have to ask you this question. since you guys have launched qe2, the rates have gone up, the stock market's gone up, and we did a poll of cnbc market participants, and they said it's possible for stock market but also higher commodity prices. doesn't that seem to be something in general that's helping small business? >> well, how much time have you got to answer this question? [laughter] >> as much time as you have, sir. >> first of all, i do think our policies have contributed to a stronger took market just as they did in march of '09 when we did the last iteration of this.

the s&p 500 p's up about 20% plus and the russell 2000 which is about small cap stocks is up 30% plus. so i think a stronger economy helps small business even more than it helps larger business bees. so, yeah, it is contributing to the stock market. interest rates are higher, but i think that's mostly because the news is better. it's responded to a stronger economy and better expectations. so i think that the policy has helped, and i think the small business which, as we started off by saying, responds to increased demand, increased market share, increased opportunity is a beneficiary of that. so, again, i think one of the best things we can do try to strengthen the overall economy. >> are you increasingly optimistic on that front say compared to the fall? have you gotten more optimistic about the economy? >> i certainly have. the reason we got into -- we started taking action in august, really. even though we head these announcements this november, this policy really began in

august, on august 10th when we began to reinvest in securities, when i talked about this in jackson hole where you always come and join us. since that time we've seen -- at that time the economy was looking somewhat shaky, frankly. and we were quite concerned about the sustainability of the recovery and the potential deflation and those kinds of risks. so we felt something needed to be done, and i think we're seeing some improvement. and as i said this the beginning, we're looking for stronger recovery this year, we're seeing some improvement in the labor market. i think deflation risk has conceded considerably, and we are moving in the right direction. >> and just one more question, would you say the risks are more balanced now i than they have been? >> certainly. in this august they were definitely to the downside, and now i think they are somewhat more balanced. although there are many uncertainties this world in the financial markets we have to keep a close eye on, but they are more balanced today. >> chairman bair, i like the way

this person put it. actually, it's a person from the fdic, i'm not going to give you their name. [laughter] bankers say we're open for business, small businesses say we cannot get credit. please comment on this asymmetry. [laughter] >> well, you know, i think the truth lies somewhere in the middle. i do think, i think regulators need to caution against overreaction this striking that right balance. i think maybe some banks also became a little more risk-averse perhaps thanth suld have been. by the same token, demand for credit has been down. so, again, you know, i think the truth is swa in the middle -- somewhere in the middle. we're encouraging banks to lend, but i think, again, getting the economy going is going to strengthen the ability of small business to start or expand and make them more creditworthy and be make sure they have more confidence this their ability to pay with an improving economy. >> senator warner, could you walk us through this next several months here which seem

like they're going to be relatively dramatic the town across the river here when it comes to -- >> i'm plaid we're in virginia right now -- gad we're in virginia right now. [laughter] >> things are relatively quiet here. but this terms of the debt ceiling, deficit reduction, i know they're not primary issues, but they're certainly important when it comes to small business and what's going to happen there. >> well, a couple of things. i mean, i think one of the messages we've heard from the regulators and can chairman bear than key is he would not say it this impolitely, but he's basically saying to the congress that we need to walk and chew gum at the same time. we need to show we can do short-term stimulus which we just did $900 billion worth in december and really what is going to be critical to keep this economy going is government's used it tools. we've used monetary policy, we've used government stimulus. we've got to get part of ha $2 trillion that's sitting on corporate balance sheets reinvested, and i think some of the policies we took in december

will help move that, and i'm, i think it's important that between the administration and the business community there's a detent. detax. but i think we also have to put in place a meaningful reduction plan. and saxby chambliss and i are working on, basically, taking the simpson-bowles commission which, by the way, got 11 out of 18 votes, even in the senate that was north of 60%. it is not perfect, but we're going to introduce that as legislation, and be it's put up or shut up time. and i think we will have a broad base of center of democrats and republicans alike who say that the single largest threat, long-term threat to our national economy is not simply the short-term challenges we face right now or the financial crisis, but getting our nation's balance sheet in order. and can that is going to take both sides. that is going to take dramatic cutback on spending, it is going

to take meaningful tax reform and a tax reform similar to what simpson-bowles did that while lowering the rates broadens the base and in certain cases ends up creating the revenue stream we need. it doesn't take a rocket science to figure out that spending 24% of your gdp and revenues at 8% is not sustainable and will not self-correct even with a slightly better economy. so i think deficit reduction, you'll hear a lot more of that. you've got to be careful around the debt limit. we don't want to pay russian roulette with the world's economy. >> is it linked to the debt ceiling increase, or are they separate tracks? >> well, i -- time will prove that out. [laughter] i trust you like a brother, but i'm not going to share all the strategy right here. i think you're going to see -- >> nobody's spent any -- >> i know that. steve, just you and i. [laughter] i think you're going to see broad bipartisan interest in not letting deficit reduction. at the end of the day, it's easy

for politicians to give tax breaks. it's harder to make the kind of hard choices that we have to make to put our nation back on a stable balance point. and, you know, states have done that. states are doing that. i had the opportunity to do that when i was governor of virginia, and i think the country's ready to step up, and i think the politicians need to follow. >> tom bell, would you tell us what the business community wants when it comes to deficit reduction? >> well, first of all, i'll tell you it is the number one issue, and it's not way out there in the future, you know, it's present. and i think the last election cycle demonstrated very clearly that, you know, there's a lot of people in this country -- perhaps a significant majority -- who think we have too much government, more government than we can afford and probably more government than we want. we need to do something about it. it's the first time this my 40 years of watching what's going on around here that i've seen the issue raise up to a top three issue, you know, this most of the opinion surveys, for instance. i think what the business community would like to see is a

significant restructuring of the tax system and of the entitlement programs. i think, you know, the problem we have at the chamber with any issue like this is that of our members have their own -- many of our members have their own specific tax accoutrements and they love and want to hang on to. >> welcome to my world. >> yeah. [laughter] and whereas they all agree we've got to do something, just don't do anything that affects me. and i think this is the first time that the chamber's taking the position as an organization and our members are generally resent e of, okay, we get it, we've got to look at the longer term. we have to look at a significant restructuring of how we derive the revenues that we derive, and we've got to get our spending down below 20% because i think that's been demonstrated that's about all you're going to get out of tax revenues is about 20%gdp. there's got to be a balancing there somewhere.

>> that's one of the most interesting issues out there. for example, lowering the tax rate this a revenue-neutral way, you have to raise taxes on half of the corporations. so it's neither a republican, nor democrat issue, it's really bipartisan. senator warner, is that one of the things you're hearing? >> we want to get town to oecd levels. we're at 5, we these to bring -- 35, we need to bring it down closer to 25. there's going to be some winners ask losers. i think the only way you get there is with a bit of shared sacrifice from even. everybody's got to feel like they're doing their part because the concern i have is while deficit reduction is top three right now, you then go out and say -- and i think simpson-bowles, for example, on social security was not very aggressive at all, but the those of raising the retirement age two years over a 40-year time frame, some of this is just math. eight workers were retiring 50 years ago, two now. these things have got to be laid

on the table, but overwhelmingly the public doesn't want to touch that, overwhelmingly the public doesn't want to touch medicare. we've got to have a little more truth and everybody -- and i'm so appreciable tom saying this -- we won't get this done unless the business community is saying, we're in for our share of the hard choices as well. >> senator warner, i want to bring it back, though, to the small business issue. my fault for going on the deficit tangent there. chair bernanke, the one issue as i prepared for this panel here that kept coming up was the issue of real estate as collateral. that in the environment of uncertainty surrounding real estate values, and i really would like to leave here with a sense there's something that can be done here on this issue that either replacing real estate or is there a role for the fed or other government agencies to come this and resolve that issue so that the small businesses that are viable can get loans because there's collateral there? >> well, on the margin you can do some things.

first, beyond all the stuff we're trying to do to get the economy going again -- >> tw right. >> -- you can work with appraisals. one of the issues with real estate is that in a distressed environment with very few sales sometimes the appraisals come in very, very low, and that's going to effect the collateral value. so the agent is says in december issued a new guidance, the basic message is that the comparables is not the only thing you want p to look at, you want to look at the whole context; how's the property going to be used, what's the cash flow, those sorts of things. better appraisals is one micro thing that can be done. but i think ultimately until the real estate markets recover which is going to take a while still the only way around this, again, is to make loans that don't rely on collateral for repayment which means that you've got to do the hard work, as i said before, of getting into, you know, what are the prospects of the business, what is it cash flow. our guidance is very clear, you

shouldn't be making loans -- you shouldn't be rejecting loans because of the industry or because of the geography or some category. you need to look at each individual business, think about its actual prospects, learn the business and then make that tough decision. collateral is a way to, essentially, make a loan without doing much work. so given that collateral is a problem now, the only way to make loans is going to be by doing the work. >> but, chairman bair, are the bankers too lazy to do that? [laughter] >> i think some of them forgot how to do it. >> yeah. >> so i think there is -- again, you know, not the community banks. i think they deserve it. i think they're more high-touch lenders, and they do typically have a more intimate knowledge of their borrowers. we think that's one of the reasons why their loan balances have remained stronger during the crisis than some of the larger institutions that have a more remote relationship with their borrowers. yes, i think -- and i welcome it because that will give us better loan quality from the standpoint

of a depositor and be all the exoaz your we take -- exposure, if the wangers do bet be -- bankers do get back to babe basics. >> are we're in the last two minutes. >> just two quick points. one of the things a number of us have been urging the regulators, you know, if the loan's performing even if collateral value is down to then dramatically post additional collateral puts folks between a rock and a hard place, particularly if they've been performing for a long time. one of the things we're also seeing is with the massive consolidation among some of the larger banks, you know, you've got management chains that have been totally wiped out this communities, and that total connection between the borrower and the banker has been, has been so destroyed that it really is a longer-term opportunity for the community banks that i'm not sure long term that we're going to be able to completely fund the community. the whole small business industry totally out of the community banking system alone.

>> no. >> there is a huge unrealized and unaddressed loan loss embedded in the banking community from real estate that's not been addressed. it has not. disclaimer, i ran a public real estate trust for eight years. it's not been addressed. we need an rtc-type way if we want to get this stuff out of the system, get it into secondary hands, you've got to create an rtc-type structure. you've got to create a secondary market. there's a lot of money that would like to invest in that secondary market, but you know what? they want to make a profit. they want to make money, you know? and some of them will make bets and lose money, but others will make money. and this administration has to address the fact that, look, if you create the structure, some people are going to get rich, some people are going to lose money, but it'll solve the problem. >> we have to wrap it up, but it's a great -- i mean, you could go for another half hour which was the original design of the t.a.r.p. was to use that for that purpose be. it's not been used and the issue festers. well, i wish we could end on a

more on the histic -- optimistic note, but please join me in thanking our panelists. >> more, now, from the fdic. this panel, moderated by cnbc's john harwood, examines challenges facing small businesses. this is an hour, 25 minutes. >> we're going to keep this discussion going. we're going to get down in the weeds on some of these issues and figure out what some of the solutions are given the problems with lending and bank standards that we talked about. got a big panel, let me introduce all of them. first of all, don graves, deputy assistant secretary of the u.s. department of treasury. we are, we're keeping some mystery around the panel. they're hiding op -- on the other side of the wall. there's going to be eight of them, so we've got to get chairs

for everybody. if i could sing and dance, i would be doing that at the moment. all right, everybody's coming out. don graves, deputy assistant secretary of the treasury. steven submits, associate administrator with the small business administration. rebecca rainy, chairman and ceo of the central bank of to do, anthony lowe from the federal deposit insurance corporation, john harrison, superintendent of the alabama state banking department. kathleen soa from bank of america. jorge from the chairman of the latin business chamber of commerce in los angeles, and denny dennis from the national the ted ration of independent business -- federation of independent business. welcome our new panel. [applause]

now, let me start out with to get everybody's brief take on the central conundrum that was addressed by the previous panel, and that was the seeming contradiction with the fact that banks say they're ready to lend, but small businesses say they can't get loans. is it a regulatory problem? is it some other problem in the economy? don? >> i think there are a number of issues at play here. i think we're, obviously, coming out of the worst economic conditions that, i think, any of us have faced this our lifetimes, and because of that you've seen some tightening of regulatory requirements on a lot of the banks which is -- >> appropriate tightening? >> appropriate tightening, absolutely. i think you've seen some changes to borrowers' credit, and that's had an impact on their ability to access credit was they've had

some -- because they've had some dings. and i think you've had some banks that are a little bit scared because of what they've seen over time. having gone through that period, i think we are now at the point where we're going to see a lot more lending going forward. we've taken a number of steps at the federal level to try and help banks do more so they can increase their lending. we've, as you hay know, we just -- may know, we just passed a small business bill that the president signed into law in september, and because of that there are two programs that are very focused on providing banks with the capital they need so that, one, they can yet the help from -- so that they can get the easing of the regulatory constraints by the regulators so they can lend, and also so they can feel more confident that they can get those dollars out and use them appropriately. >> rebecca, how much of a difference is that small business lending facility going to make? we heard some objections there people opposed to it who said that some banks were going to

regard that as mini t.a.r.p. and not be associated with with the stigma of that program. >> you know, i think it provides a tremendous opportunity. the treasury did a great job, i think, differentiating what the small business loan fund will be as opposed to what t.a.r.p. was, so it is very different. i think for those banks that are heeding the capital that have a demand in their community, it'll be a tremendous opportunity for them to leverage and get back to lending. >> steve, you agree? >> i absolutely agree. i think we've gone through a crisis. i think a recession that many of us have not seen this our professional lifetimes. i think that our businesses are beat up, our small -- our banks are beat up. and can i think that this provides a wonderful opportunity for banks that are looking for capital, and, you know, i think it will do good at the right time. >> but let me, let me get a show of hands here. there anybody on this panel -- does everybody on this panel agree with the proposition that 12 months from thousand the

economy's going -- now the economy's going to be in a lot stronger shape, that we're headed in the right direction? does anybody agree with us? >> a lot. >> a lot. >> talk about it. a little. >> with just coming from my experience in california, if you look at the levels of unemployment and you look at the number of foreclosures in 2011 we're looking at losing another approximately two million homes added to about almost seven million, that's going to keep things very, very rough. i mean, perhaps there's a measure of growth, but i think in the small business sector -- and that's what we're here about today -- i think it will be not dramatic at all. that's unfortunate, but, you know, it's good news, i suppose, that the large corporations are doing much better, and that's good. however, the money that they're making are not going into job creation so much and the studies that we've seen, it goes more into stock buybacks and acquisitions, these kinds of

things. so we really these to examine, as we will do this afternoon, what are the opportunities for small business to make the recovery. there's no real economic recovery for this country without a small business who generates 65% of the jobs. >> kathleen? >> i think you could say a lot for larger businesses, but i agree. for smaller businesses i think it's starting to improve, but many small businesses are heavily invested in real estate, commercial and residential, and until we get that turned in the right direction, i think it's going to be a slow recovery for small businesses. >> john harrison, tell me from your perspective to what degree are we suffering from overreaction by regulators, and how much improvement can we get by turning those dials as opposed to just waiting for the economy to lift this whole process? >> well, the reaction is real the way we see it from our banks in alabama. there's not a single one of them, probably, that if you

dialed 'em up would not say they feel regulatory pressure when they're looking at trying to make, make a loan. but on the flip side of that, you know, banks cannot survive without lending. so, you know, we have tried to poll, we have tried to partner, we have tried to be involved from every aspect of making sure our banks were involved this the lending process -- in the lending process based on what we hear from the banks don't want to lend or are not lending x. when we survey that, we come back, and our wangs say -- banks say, no, we don't have the demand, we're willing to end. lend. >> anthony, what's your perspective on that? some of the business community were complaining that the reason the economy wasn't doing better was because all these regulations and new laws that

were being considered created uncertainty, and others said, wait a minute, the fundamental problem is there's no demand. is that the fundamental problem with lending to small business? is that economic conditions are such, and the recovery's going to be so slow that there suspect going to be the scale -- isn't going to be the scale of demand that we want to see? >> i think that's a large part of the issue. you know, i hear a lot of anecdotal comments especially from bankers and congressional that it is the regulators that are causing banks not to lend. but when i talk individually with bankers when i'm on panels or visiting a bank during an examination, they consistently tell me we're open for business like the comment was made earlier, we're ready to make loans, but there's just not the demand. a lot of small businesses out there, people that we've banked for years on end, just are in a situation right now where they want to expand their business. the business themselves are trying to conserve capital, they're trying to make sure that

their business plan is still going to be feasible and be reasonable going forward. so i think it's a come combinat. >> can denny, do you agree with that? do you think lack of demand at the business level is the fundamental problem? >> um, well, no. i think there's a problem below lack of demand. i think there's certainly more fundamental that create the lack of demand, but clearly, the lack of demand is there. in 2009 we saw there were about 55% of all employers wanted to borrow, small employers. and made some attempt at getting some credit somewhere. in 2010 that fell to 48% be. the thurm of approvals edged up -- the number of approvals edged up slightly, so i'm not sure that the total numbers changed all that much from year to year, but clearly demand at least in terms of the number of firms that wanted it was down and reasonably substantially. now, you saw the, the fed survey of borrowers, or of lenders that

come out of the major banks, of course, not just small ones show that we began to see something down, that the downward trend really began to reverse itself in october. we're beginning to see that a little bit, yeah. but still demand is a real issue. >> what is your, what is the nfib's perspective on the small business lending fund? good stuff by government? will it make a significant difference or not? >> eh. [laughter] i mean, that's how we -- we supported it. >> $30 billion is not real money? >> we supported it, you know, as the chamber when it was in before the congress, but is it going to make a difference? not really. because what you're looking at is you're looking at a situation where it makes some real assumptions. the first assumption is that banks don't have money to lend. and that's not true for the most part. now, there are certain banks that do. but we see even a lot of small

banks with lots of money that are sitting there and are putting it in munis because they don't have customers they can lend it to. and can so you go through, and you start looking at these, and then not only is there -- do you have any money, but there's the do you like the deal and and that sort of thing. i'd be curious to know how many banks have applied for this so far. i mean, i saw that march 11th was the date that was kind of recommended that, you know, you apply before then or whatever and we're near that. but i haven't heard how many banks are interested. >> don, let me ask you, you know that gene sperling who's the president' new choice for the directer of the economic council broke his back getting that small business lending fund passed through congress. and if he broke his back for eh, was he wasting his time? >> i respectfully disagree with my colleague from the nfib. we've heard from businesses all

across the country who are saying, you know, we can't get access to credit. and i think there's an issue here, it's a little bit more nuanced. there are geographic -- there's a bit of a geographic dispersion for credit demand around the country. certainly, there are some parts of the country where you have banks who are flush with money and don't have borrowers, but there are large parts of the country where businesses can't get access to lending because the banks are constrained from providing them with those loans for a number of different reasons. we think that the small business lending fund which it's a $30 billion capital fund will provide hundreds of billions of dollars in many lending to small businesses across the country. sure, it's not for everyone, it's not for every bank, it's not going to get to every business out there, but i think that at the end of the day you're going to see a huge uptick this amount of lending -- in the amount of lending because of the program. >> rebecca, you are the reality check. who's right, don or denny? [laughter] >> well, you know, i think

there's a lot going on. our particular bank i'm not sure if we'll use these fund because we do have liquidity and capital, and we need the demand. >> eh. >> can well, no, because in looking at a lot of my colleagues across the country, i think that there is an opportunity, there is a need for banks that need that capital so that they can. they're faced with capital concentrations, there's any number of things that they're up against that they are not able to lend. and so for a lot of those organizations, this will be a tremendous help. it's not the solution for everything, but it's a part of the piece getting us there. >> kathleen, rebecca just ducked. who's right? [laughter] >> can i think it's somewhere in between. >> you're ducking too. >> yeah, yeah. [laughter] i wonder how many banks need the capital, and to denny's point, it'd with interesting to find out who's applied for it. i know there's some reluctance to apply given the stigma that could be associated with it. so i do think it will help some of the community banks. there are other provisions in

there around capital access fund for states, i think that can help. again, those are borrowers at the margin. >> john? >> well, you know, in alabama our banking department was a proponent of t.a.r.p.. we thought it was an absolute outstanding way for our banks to get some much-needed capital that we saw they were going to need. our perception was that it was a government bailout, therefore, they took an awful lot of heat from their customers and from the press and from the public this general when -- in general when, actually, it was a great investment for the government and for the banks as it's being repaid with interest. and this is the same thing with this fund. i see that our banks this alabama, we have some that need additional capital and absolutely the private equity

markets are pretty rough, and this is an opportunity for them to be able to acquire capital. however, sometimes i look at whether the real criteria, the ones that probably need the capital and could make it and use it are not going to be able to qualify because they're, they have some problems in there. so the ones that are strong and healthy probably don't these the capital, therefore, they're not going to want to use this program. to date, we have, we're around 145-50 banks, somewhere in the neighborhood of $250 billion in assets, ask i think we have one application on file. >> steve? >> you're going to tell me i ducked. the answer really is it's going to be good for some

institutions, and other institutions are going to make a decision that they don't need it. and that's the honest truth. >> well, let's put it this way, is it a good thing that congress created it? >> i think it's a very good thing. i think it provides another resource and a tool for the banks that really look at this. i mean, this is -- >> critics said it's $30 billion slush fund. >> i don't see that at all. i see this as supporting our community banks. our community banks play a vital role in providing access to capital to our small businesses. and, again, this is another resource and a tool to help strengthen these banks. >> jorge, do you agree with that? >> i think the concept is excellent, you know? it's about as innovative as you're going to see from the government. [laughter] you know, there are some funds there for community banks, and can we have got a ton of them in california. >> do you have a low opinion of people who work in government? [laughter] >> no, i don't. not at all.

i think we saw some really good folks here this morning. i think their hearts and their minds are into governing. but my point is this, i think it's a really good concept, but there are a lot of other aspects to that jobs program that show additional inknow e sativeness by the government, you know, in terms of sba, the broadening expansion of sba lending. it's not enough. the biggest problem is it's a digit too small if you look at the nature of small business across the country and the need for funding. but there are other things that are so important be about this like the lending to cdf. we've got tons of them this california. alternative means of providing credit. and i think by looking at these kinds of things, you're looking at some extraordinary measures that could serve some good. the problem is there's not enough funding. >> anthony, i want to shift gears for a minute and talk -- i've got some cards with questions that were submitted by some in the audience and some who are not here. and one of the ones that intrigued me was this question

which said there's now proof that the use of of the personal credit score is a major barrier to lending for some small businesses. what can be done about that? >> well, you know, i'm not sure if i would agree with that, that concept. i know when banks are looking at their lending function and deciding on making credit, you know, credit score may be one of the issues that they're going to look at, especially a personal credit score. you know, a lot of small businesses, individuals are using their homes as collateral, you know, their personal wealth to, you know, get the financing approved and those type of things. but the credit score's just one factor. i think most of our lenders, or the bankers that i talk with, there's a variety of issues that they look at and consider. >> kathleen, big issue or not a big issue? >> i don't think that's a big issue. there's actually less reliance on credit scores today than there was at the heighth of lending where we weren't doing income verification and were doing more traditional lending on most credits, not relying on

the credit score. >> if you're in this room and that was your question, do you want to rebut any of the statements that it's not a big deal? >> we built a platform that -- [inaudible] lends to pizza places and pharmacies, autorepair shops based on the financial health of the business. we've done $100 billion since now, and banks are trying to adopt -- [inaudible] but they say they cannot -- >> let me have you go to the microphone so we get all this and repeat the question and identify yourself, and we'll start again. >> thank you. my name's mitch jacobs, i'm a entrepreneur, built a technology company. what we're doing is using technology to collect financial metrics of small businesses, main street businesses and solve

the problem of of all the time that goes into evaluating the financial health of a business using automation to solve that problem. banks feel like the reliance on the personal credit score is still very important. and if they were to approach their regulator with a portfolio that had a lot of 600 tycos in it, they'd have an enormous problem. but the fico score is not at all or the personal credit score is not at all relevant to the overall health of the business. it's what chairman bernanke said before, the work involved in evaluating businesses, it's too much work. >> rebecca, the personal credit score a big deal at your bank? >> it's a part of the equation, certainly. >> should be? >> we're working with individuals, it's their business, uh-huh. >> would you lend to 600 ficos? >> yes, there's several on our books. >> okay. that, i think -- >> it's part of the equation. what we do as bankers is look at the entire story, and that's -- sometimes it's good, sometimes

it's bad. >> and i think the other issue here is 50-$100,000 loans where there's millions of those that need to be made to get this thing kick started again, and i think that's where the challenge comes in. all there should be is a conversation about this, when you're dealing with those smaller loans, the reliance on the personal credit score is a major obstacle to small business. >> anybody on this panel think that he's got a good point and that the financial system and banks need to adjust to that point? >> you know, he's got an extraordinary point. and i think that we've been -- our chamber does loan packaging for members and other small business. and we've been a strong advocate of technical assistance for small business. and part of that is that we can bring loans to bankers where we have a technical assistance agreement with them long term. that's not to suggest that anybody having technical assistance is going to be eligible for a loan. however, we can prove that this business is operating very efficiently, they have the ability to repay the loan and

opportunity for growth. and that could really be a part, a measurement or a substitute as part of the credit analysis. >> denny, what do you think about this question? >> well, first of all, i'm fascinated by it. i mean, anything like this is always of great interest. but the second, the second thing i keep thinking about is think of the studies that i've done using pay dex which is the dunn and brad street score, i mean, there's a clear relationship, 2000, between -- between who's better off and who's not. there is a relationship there. but it's interesting because you're developing a new type of credit score that just doesn't use fico, it sounds like to me. >> and it's the smaller businesses. pay deck doesn't go below $3 million in revenue, and that's seven million businesses that can't access capital. >> well, yeah. my point still goes to the point that you're starting a new type

of credit score, just not using fico. and, you know, that's a very interest thing. i mean, i, i'm very interested, and i hope you go ahead and it work. i'm all for you. >> i just think, you know, this country has extraordinary technology assets, and there should be more discussion about using the technology assets as we try to solve the problem with delivering capital to main street. thanks, thank you. >> want to shift to a question about collateral, and we had the discussion in the previous panel about real estate as collateral, and that was very difficult. here's a question, since small business lending is mostly based on collateral, real estate, with values down 30-50% what other kind of financial products are possible for small business? why not take warrants or preferred stock and invest in upside? is that a viable way to compensate for what's happened to real estate, and how could that come to pass? >> depends on what size business you're talking about. in my community preferred stock in businesses doesn't exist, so

if you're trying to get to rural america, it's tough when you're looking from a collateral perspective. yes, you can look at the history of the business, but if we start making a bunch of business loans without collateral, i'm not sure my friends at the fdic are going to treat us too fairly. especially when you're talking rural america. >> anthony, is this a dead end suggestion? >> i wouldn't say that, but i think the premise here, the majority of our institutions when they're doing lending and looking at, you know, which loans are going to approve or fund, they're looking at repayment capacity. collateral is looked as as a is secondary source. so i my post bankers, you know, anything they think they can liquidate at the end and get repaid, i they'd probably consider it. the majority of our bankers are looking at repayment capacity. what's the cash flow, what's the business plan, are you going to be here three years from thousand to pay back my loan --

now to pay back my loan? >> there's a entrepreneur down in southern california that has been developing things along this way or hay long this -- along this line where it's a much more sort of negotiated thing in a nontraditional way. he does talk about, you know, giving different types of paybacks and different types of, of what can i call -- anyway, tying up certain types of ownership shares and so on. but it's negotiated sort of thing. the thing that makes it useful is that it goes for a certain type of business which is a little larger small business. it's not, basically, the main street, the under 20s, the under 0s, it tends to be the little larger ones, and that's where i think the opportunities arise for such things that, you know, as you're talking about. >> tom? >> one of the other things that was mentioned earlier is that we've taken a thurm of steps

at -- number of steps at the federal level to support small businesses recognizing there are these collateral issues. one of the programs that was part of the small business jobs act is the billion and a half dollar small business initiative. that program is specifically aimed at assisting states with their innovative credit support programs all around the country. those programs really do, are really aimed at supporting businesses that have had collateral deterioration issues. their loan loss reserve or portfolio insurance programs, their collateral support be programs all across the country, these innovative programs that have worked at the state level, you know, obviously with the fiscal constraints that the state governments are facing these days, the federal government can step in and provide them with that type of additional funding, and we think, you know, at a bare minimum we're twoing to see about $15 billion worth of additional lending for those businesses that are having the

most troubles. >> collateral is an issue, but the primary issue, our number one reason for decline is lack of adequate cash flow. that is the primary issue. when you bring up warrants, you know, the reality is a lot of these businesses need an equity injection. and it's not lending that they need, they need equity, and i think the previous panel spoke to that as well. and the angel investor network, that just doesn't exist today. >> we are approaching martin luther king holiday on monday, and i got this question from the audience, and i invite -- i'm going to read the question but invite the person who submitted the question to, perhaps, follow up when we're getting the answers, and we can have a dialogue. what can the president do before the 2012 election to help six million minority-owned businesses create jobs for more than 30 be million -- more than 30 million americans who are unemployed or underemployed? is what's the answer to that? >> you know, i think there are a number of things that the president could do without any

congressional action. i think, you know, part of it is in data collection. first, before you though where you're going, you have to see what you've got and whether it's contracts or lending, these kinds of things. the key is on generating contracts for small businesses, and the you generally look where the data is available and it's not generally that available but it can be made, there are very few contracts to small business. government contracts, for example, or even their prime contractors. so we need to analyze what is the measure of contracting going to small business? because this would generate jobs, it would create some collateral. so data collection is really critical, and the president -- >> but with the idea of making requirements on a certain amount of contracting? in that's a possibility. but i'm saying you can analyze what you're doing with the small business sector if you don't know what's going on. once we can analyze that, i think we can make some strong

recommendations. but the president simply asks his cabinet members and regulators to provide him with data on contracting, data on small business lending, andyou look at small business be 24 out of the 27 million are people that do less than ten million a year andless than 100 employees a year. so that kind of analysis really critical to dealing with unemployment, dealing with contracting, dealing with lending, all of these things are a combination of those. >> steve, this president has in a certain way some people use the term ratio, he's been talking about solutions that lift all votes although some may be targeted toward lower income or more, less advantaged wizs. but what can be done specifically for minority businesses? >> we can talk about things we are doing as well. at the office of capital access, i looked at our role as actually filling a lending gap.

our programs are designed to address where there are gaps in the lending. and so with that said, it's very clear that our underserved communities are disproportionately hard hit by this recession that we're going through. that's the facts. so to me, that is a gap. and i take that as the office of capital access for the sba is i take that as a responsibility to how can we fill that gap. one way that we're doing that is we recently announced our programs which are actually addressing our underserved communities. we are going to be offering our sba7a which is our flagship government guaranteed program where for the first time our mission-based lenders -- these are nonprofit, small lending organizations that are inside of these communities all over our country that will now have the opportunity to provide, you know, 7a loans to the

underserved communities. now, why is that important? it's important because of, and i think we talked about in this a little bit, technical assistance. before joining the sba, i spent 20-some years in the trenches as a lender, a small business lender. and i have, my philosophy's really simple, is that the attention that the small business owner places before those front doors of that business first open can be all the difference between a successful business or not a successful business. so most of our underserved communities really need what we call our smaller loans. you have $250,000 and under. the challenge for many banks, larger institutions, is in order for the economics of providing a loan under $250,000 it has to be a very streamlined, quick decision. not a lot of hand holding. these mission-based lenders are built upon the platform of hand

holding. attention up front and entrenched this their communities they understand the dynamics of that community. and that will translate into success for these small businesses this the future. >> sir, if this was your question -- >> yes, it was. >> -- let me just is ask you how satisfied are you with how the government is filling the gap that steve mentioned, and how effectively are major financial institutions filling that gap? >> they're not filling the gap. i think when they were talking earlier regarding the contracts, one of the great things about the dodd-frank pill, in our opinion -- bill, in our opinion, is the the subsidy that congresswoman maxine waters supported. that is a significant piece of legislation, if you will. it's going to have a great impact on minority-owned businesses and business in general, if you will. because it requires financial

institutions and other corporations that are doing business with the federal government to submit data to them regarding not only their employees, the board, what have you, but the contracting, if you will. and as was pointed out earlier with the federal government, we've been trying to get data from are the department of defense for the past two years to find out what percent of their contracts were awarded to minority and women-owned businesses. right now the data we have is there are 2005 says that less than 1% of latinos, black-owned businesses, asian-owned. so we think this piece of legislation is critical, and we have taken it on ourselves to make certain that the industry as well as corporations who have contracts with the federal government adhere to that piece of, part of the legislation. >> don and steve, let me ask

you, why are the numbers so low as he cited, and secondly, why is the data not better? hour hay was saying -- jorge was saying we need more data. why don't we have it? >> i can't speak to the first issue, i don't actually know the numbers right now. i though that we have a strong commitment, the president has a strong commitment, i know secretary geithner has a commitment to this and i think administrator mills as well to insuring that we do the most that we can to support the success of businesses in all parts of our communities. as to data, i think the speaker is exactly correct. data is crucial to getting a better handle on where we're doing a good job and where we're not doing a good job. and i think this president and certainly secretary geithner are willing to own up to problems that are there in the government, and we want to work to do our best to insure that a wide range of businesses have

access to the opportunities at the federal government -- >> steve, he says the gap is not being filled. >> yeah. and i don't want to speak to the numbers, that's not my area in the sba. but what i can tell you is the strong commitment as the sba in our role that we play to insuring that small businesses have access to contracts. and i think that we've done great strides. i think i've seen a significant amount of progress made with working with other government agencies to insure that our small businesses and our 8a firms ask minority firms have access to participate in those contracts. >> he mentioned one of the strength of the dodd-frank bill. let me just get a show of hands on this panel, how many people here think the dodd-frank bill on balance is positive and it's going to make a difference for the better in the financial system? >> and who thinks it would be better off had it not passed?

[laughter] you're not giving me -- >> no, i'm not going to give you that. there are parts that are fine, and there are parts that are not so good, and i'm not sure that i like the balance, but that's -- >> what is the biggest single problem in your view? at the end of the day, the administration and the democrats in congress were saying, look, do you want the old system, or do you want something new? this is what's in front of us. what do you think is the biggest single problemsome. >> well, the whole -- the biggest single problem is the whole regulatory structure that's going to be required of it. that doesn't mean something shouldn't have been done. quite clearly, too big to fail is a major issue that has to be addressed. i mean, it's just ridiculous that we haven't done can it before, and there are lots of aspects to it. but the whole way of going about it i'm not sure is the most appropriate way to do it. but i think in terms of long term in terms of small business,

i'm not sure that's going to have a big effect on small business. this is going to be, someone from a large bank may disagree with me, but i'm not sure this is going to filter down to us. >> the impact is going to be, it's going to add some time, cost, complexity to the lending process because we're going to have to gather more information. it's definitely doable. we're concerned about having absolute clarity and as much simplicity in the processes as possible, but it won't inhibit small business lending. >> i want to -- it will not inhibit small business lending. >> no. >> i want to shift to a different issue which, of course, occupied much of the first two years of the obama administration, and that was health care, and try to get a sense from the panel especially beginning with rebecca and kathleen as to how the passage of the health care bill is going to effect the viability of business in the near term. we had a question from the audience that said, you know, small si