Obama Says Banks Have Obligation to Aid in Recovery

Dec. 14 (Bloomberg) -- President Barack Obama said the nation’s banks have an obligation to help accelerate the U.S. economic recovery after the government bailed them out of a crisis “largely of their own making.”

“America’s banks received extraordinary assistance from American taxpayers,” Obama said after a White House meeting with bank executives today. “Now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild the economy.”

Obama spoke after meeting with executives from Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and other financial institutions as he seeks to ratchet up pressure on banks to extend more credit to small businesses and ease opposition to his regulatory overhaul. He plans to meet with representatives from community banks on Dec. 22.

“The fate of our financial institutions is tied to the fate of our economy and our country,” the president said at the White House. “These institutions can’t endure if workers don’t have jobs and businesses can’t grow and consumers don’t have money to spend.”

Lending Commitments

Charlotte, North Carolina-based Bank of America, the largest U.S. bank by assets and deposits, issued a statement after the meeting pledging to increase small business lending at least $5 billion in 2010 from anticipated 2009 levels.

Wells Fargo said it expects to increase lending in 2010 as much as 25 percent, to more than $16 billion, for firms with $20 million or less in annual revenue, according to a statement by Sarah E. Toffoli, vice president and communications manager.

Obama said he doesn’t expect or want banks to resume making risky loans and that he understood they must increase their capital as a financial cushion.

“But given the difficulty businesspeople are having as lending has declined, and given the exceptional assistance banks received to get them through a difficult time, we expect them to explore every responsible way to help get our economy moving again,” Obama said.

Richard Davis, chief executive officer of Minneapolis-based U.S. Bancorp, said as he emerged from the White House that the bankers understood that more credit needs to be extended to businesses and that financial companies are under a microscope because of the bailouts.

‘Aggressive Goals’

“Every bank in that room talked about adding many, many small business originators, and setting very aggressive goals for small-business lending next year,” said Davis, whose bank repaid $6.6 billion to the Troubled Asset Relief Program fund in June.

While White House press secretary Robert Gibbs said the bankers agreed to take “second looks” at loans that had been denied, some executives cautioned that banks still needed to act judiciously.

“Not everyone is credit worthy in today’s world,” Robert Kelly, chairman and chief executive of Bank of New York Mellon said on CNBC after the meeting. The U.S. economy is recovering, he said, “but it’s really fragile.”

Gibbs said Obama didn’t give the executives any specific benchmarks for lending.

On Obama’s other priority, Davis said the executives “do support regulatory reform.”

Other Participants

Other CEOs attending were Ken Lewis of Bank of America; John Stumpf of San Francisco-based Wells Fargo; Kenneth Chenault of New York-based American Express Co.; Jamie Dimon of New York- based JPMorgan; Richard Fairbank of McLean, Virginia-based Capital One Financial Corp.; Ron Logue of Boston-based State Street Corp., and Jim Rohr of Pittsburgh-based PNC Financial Services Group Inc.

Goldman Executive Vice President and Chief Counsel Gregory Palm also attended.

The president and the executives spent more than an hour in the meeting. Three of those invited -- Richard Parsons, chairman of Citigroup Inc.; John Mack, CEO of Morgan Stanley, and Lloyd Blankfein, CEO of Goldman Sachs Group Inc. -- couldn’t get to the White House because of flight delays caused by fog in Washington. They participated via conference call.

Parsons was participating in the meeting on behalf of Citigroup rather than CEO Vikram Pandit because Pandit was occupied with a deal to repay $20 billion in taxpayer aid, Molly Meiners, a bank spokeswoman in Washington, said.

Citigroup, the only major U.S. lender still dependent on what the government calls “exceptional financial assistance,” will raise the funds with a sale of $20.5 billion of equity and debt.

No Awards

Gibbs said the session was “quite frank. The president didn’t hand out awards.”

In addition to freeing up more credit to small businesses, Obama is trying to blunt opposition to his plan to revamp financial market regulations, including creation of a Consumer Financial Protection Agency to enforce rules intended to prevent abuses in credit-card and mortgage lending. Obama’s other topics were executive compensation and the housing market.

While the meeting was mostly cordial, Obama said he told the executives he will battle for financial regulatory overhaul, even as the industry “lobbied vigorously” against it.

“I made very clear that I have no intention of letting their lobbyists thwart reform necessary to protect the American,” he said. “If they wish to fight common-sense consumer protections, that’s a fight I’m more than willing to have.”

House Vote

The U.S. House voted Dec. 11 to approve legislation sought by the president to tighten rules for derivatives, expand oversight of hedge funds and create new authority to break apart financial firms that threaten the economy. Action now moves to the Senate.

“Around the table, all the financial-industry executives said they supported financial regulatory reform,” Obama said. “There’s a big gap between what I’m hearing here in the White House and the activities” of industry lobbyists.

“I urged them to close that gap,” Obama said.

Gibbs said the bankers acknowledged “problems” caused by compensation. “It’s not just the structure, it’s also the amount” of pay and bonuses for executives while the country still struggles to recover from the worst recession since the 1930s.

Obama said in an interview on CBS’s “60 Minutes” program broadcast last night that he’s frustrated that “fat-cat bankers” are continuing to get large bonuses. He said it indicates “people on Wall Street still don’t get it.”