Grossman moving money
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On the campaign trail, Steve Grossman’s stated desire to run the Treasury as an activist invited frequent barbs from his Republican opponent. Grossman charged right through those attacks, and at his swearing-in ceremony last week, he reiterated the call to harness the Treasury’s funds for public policy purposes, saying, “To those who question the idea of an activist treasurer, I say, the stakes are too high to settle for anything less.”
That line, a clear shot at his campaign critics, appeared at the top of his maiden speech. It even preceded the speech’s JFK references. “Being an activist, to me, means being totally responsible every step of the way, but using the full potential of the office,” Grossman said afterward.
“We should reward small, local, and regional banks that have demonstrated an appetite to make small business loans to qualified borrowers,” Grossman argued. “I’ve talked to too many small business owners who have said, ‘I’d like to finance my inventory or my receivables, or I’d like to open a new warehouse and hire new staff, but I can’t get a line of credit from a bank.’”
At any given moment, the state is sitting on billions of dollars in cash. Much of it is tied up in investments and financial instruments. But the state also has hundreds of millions of dollars in shorter-term funds deposited in large banks. The exact amount fluctuates daily. Some of these funds flow in and out quickly, as the state collects taxes and pays its bills. Other portions aren’t committed to specific liabilities, and exist to preserve short-term liquidity.
Grossman wants to take a large slice of this last pool of cash – up to $100 million of it – and move it to a syndicate of local banks committed to loaning out the cash. “If we wanted to, we could move it immediately,” Grossman said. “There are significant funds we don’t need immediately. We have the capacity to move significant amounts of money.”
Grossman first floated the notion of harnessing state deposits to spur small business lending during the campaign. It’s derived from the complaint that the nation’s biggest banks have been hoarding their cash for the past four years in order to withstand losses related to the national housing bust.
Community banks in Massachusetts, which have generally had less exposure to toxic housing assets, have been picking up business as the larger banks have retrenched. But their balance sheets aren’t always large enough to keep pace with the demand for credit. The Treasury plan would move excess cash to these institutions, allowing them to make more loans to credit-worthy businesses. The hope is that job creation would follow.
Special attention would be paid to directing deposits into banks in the state’s Gateway Cities, and to banks that do large volumes of business with minority-owned businesses. “As New Bedford, Fall River, Holyoke and Lawrence go, in terms of economic growth and new capital formation, so the Commonwealth goes,” Grossman argued. “We have to be cognizant of that, and examine how we can accelerate the creation of jobs.”A look at commercial loan volume from banks headquartered in Gateway Cities seems to indicate that there’s a significant demand for the type of new capital the Treasury’s program would provide. Through the end of September, commercial lending at these banks was up 12 percent over the prior year, up 23 percent from two years ago, and up 52 percent from 2007 levels. (Data through December was not yet available from the FDIC.)
“We’re prepared to move fairly quickly, Grossman added. “We’re going to do our due diligence to the fullest extent, but we’re not going to drag our feet on this. The question is, can we move the needle in a meaningful way?”