Banking and Financial Service Law
Robert J. Diehl Jr.
Commercial and industrial loans across the country expanded by more than $60 billion in the first three quarters of the year — an increase of more than 6 percent from the same period a year ago, according to the Federal Reserve. The bulk of the loans went to midsize companies looking to fund equipment upgrades or undertake renovations. Meanwhile, small companies were more apt to rely on productivity gains rather than spending money on new equipment to raise their earnings.
“In Michigan, you’re looking at a very competitive lending market, which is good for businesses overall,” says Robert J. Diehl Jr., an expert in complex business law matters and commercial transactions at Bodman in Detroit. “Over the long term, banks can only grow revenue and increase profits if they boost outstanding loans. There’s also added competition from nontraditional lenders and equity investors, which gives businesses more loan options.”
New federal regulations that require banks to maintain a higher level of reserve capital will impact borrowing, although many rules stemming from the Dodd-Frank Wall Street Reform and Consumer Protection Act have yet to be written, Diehl says. “Because banks are required to keep more capital on hand, it will naturally decrease the number of loans that can be made,” he says. “… Capital flows where profit is highest, and if you crimp the banks, the capital will go to where it can earn higher profits.” Larger banks will be able to manage the new regulations better than smaller banks, Diehl adds.
On a related front, Diehl says bank workouts, or troubled loans, are on the decline. Absent a double-digit recession, he believes workout loans will fall further in 2012. On the housing front, Diehl says low mortgage rates have helped stabilize the marketplace, but not enough to mount a noticeable recovery.
“The other positive trend we’re seeing is that the loan portfolios of failed banks have largely been bought out by healthier banks, and that has brought a tremendous amount of stability to the banking sector,” he says. In addition, a decline in business taxes in the state, along with a reduction in the complexity and amount of regulations, bodes well for the future. “Michigan is doing better, and you’re beginning to see that in economic surveys and the like,” he says. “That can only help us down the road.” —R.J. King
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