Fed committee to discuss bank lending and recovery

Sep.September 22, 2009 08:38 AM

The Federal Open Market Committee will conduct a two-day meeting today and tomorrow to discuss the Federal Reserve’s two dueling goals: securing the banking system and encouraging economic recovery. Bank lending decreased for five consecutive weeks through Sept. 9, due in part to the Fed’s mandate that banks implement stricter standards for borrowers. But while this decrease in lending could shore up capital and strengthen banks, it could have a negative effect on real estate and construction — two industries that some feel are integral to widespread economic recovery. “While it is important […] that lenders provide credit to worthy households and businesses, they also must maintain enough capital to withstand losses — even if economic conditions turn out to be worse than anticipated,” Janet Yellen, San Francisco’s Fed president, said. “The financial system is still far from healthy and tight credit is likely to put a damper on growth for some time to come.”

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