By Brian E. Clark
MADISON — Wisconsin bankers will continue to be tight with their lending this year, a UW-Madison professor said Thursday.
Lending in the Badger State was down by nearly 5 percent in the third quarter of 2009 compared to the same period a year earlier, but that was better than the national fall-off of 7.2 percent, Prof. Jim Johannes, senior associate dean of the Business School, told a Business Credit Availability Forum at the Monona Terrace Convention Center.
And while that number should decline as the economy improves, he said bankers would be wise to manage their assets conservatively.
“But lenders are caught between a rock and hard place because of government policy inconsistency,” he said. “President Obama is asking banks to make more loans to small- and medium-sized businesses, while regulators are telling them to be careful.
“So banks will be cautious, and that’s a good thing,” he said.
Johannes said lending headed into negative territory in mid-2009 and was a part of the normal downturn that is part of the business cycle.
“But this recession is worse than anyone in this room can remember,” he told a group of bankers.
Johannes warned that more regulations are coming from the federal government to prevent some of the lending excesses that led to the current problems. “I just hope it’s done right this time,” he quipped.
Quoting 19th Century British economist Walter Bagehot, he said it often takes a recession to shock people back to reality.
“But it will take a long time for bankers to figure out what risks to take when making loans,” he said.
In a panel session after Johannes’ talk, Robert Just, president of the Mound City Bank in Platteville, said “plenty of credit is available.”
But he added: “Originations are down, because qualified buyers are waiting to get a better read on the economy. There is little demand. And buyers who are highly leveraged no longer qualify.”
And Bill Smith, state director of the National Federation of Independent Business, said optimism among his members is up slightly.
“The economy may be improving, but very slowly,” he said. “Good borrowers are sitting on the sidelines and the problem is low sales, along with the uncertainty over the potential cost of health care reform and the deficit.
“They don’t have confidence to add full-time workers or think about expanding in the current environment,” he said. “So loan demand is weak.”