In a recent report from the Treasury Department, the government agency revealed that the top 22 beneficiaries of the government’s TARP funds showed the overall value of all outstanding loans declined by nearly $37 billion, or 0.9%, in October. That marked the ninth consecutive month in which banks offering loans decreased and followed a 1.1%, or nearly $46 billion, reduction in September.

According to the report, the outstanding loan balances from the banks tallied $4.12 trillion in October, down from $4.16 trillion in September. In October, the 22 bailout fund recipients originated $240 billion in new loans. Of the new loans initiated, mortgages and commercial loans increased, while new lending declined for home equity loans, credit cards and commercial real estate lending.

In response to the Treasury’s report, Fed Chairman Ben Bernanke commented, “We have told the banks very clearly that we want them to make loans to creditworthy borrowers, where there are borrowers who can repay the loans. Even though the recession may be technically over, in a sense that the economy is growing, it’s going to feel like a recession for some time, because unemployment remains very high, about 10 percent.”
Soon after the release of the report, President Obama approached the nation’s top banks to help the struggling economy get back on its feet by boosting lending to small businesses and to support revisions of financial regulations. Some banks reacted by conforming to the plea by the President, along with curtailing compensation for their employees.

President Obama responded by saying, “America’s banks received extraordinary assistance from American taxpayers to rebuild their industry, and now that they’re back on their feet, we expect an extraordinary commitment from them to help rebuild our economy.” Bankers are asked to “explore every responsible way to boost lending and to take a third and fourth look at every loan application,” the President added.

Kenneth Lewis, CEO at Bank of America (BAC), stated that the bank would lend $5 billion to small-and medium-sized businesses more in 2010 than it did in 2009. Through the first three quarters of 2009, BAC provided more than $12 billion in credit to small businesses, while aiding more than 49,000 small companies with loan modifications that helped increase the businesses’ cash flow.

Bank of America also initiated more than $215 billion worth of loans to mid-sized companies during the same period. However, in September, the bank saw a 6% decline in loans originated, falling to $53.6 billion.
Lewis remarked, “Bank of America is determined to do our part to help the economy grow next year and reduce unemployment by making every good loan we can make. We agree with the President that small and medium-sized businesses are the lifeblood of the U.S. economy. Their ability to prosper and grow is key to job creation to help our nation recover from the economic slowdown.”

Lewis later added, “Our improved financial condition and our optimism about the economy will allow us to step up lending to support these clients. This is only one of the initiatives we are pushing, but it is a very important one.”

JPMorgan Chase & Co. confirmed that they would boost lending by $4 billion in the coming year. Additionally, Citigroup Inc. (C) said that they would increase lending once the bank repays the $20 billion it received from the TARP fund.

In addition, Wells Fargo & Co. (WFC) witnessed its lending plunge more than 14% in September to $47.4 billion. The bank also confirmed that it would repay its $25 billion bailout as soon as they complete a $10.4 billion transaction by selling stock.

With the latest round of news of banks committed to repaying monies from taxpayer support, the government now anticipates more than $185 billion to be repaid in the coming months, with more than $90 billion of that total dedicated in the past two weeks.

Timothy Geithner, Secretary of the Treasury, mentioned, “The government is rapidly unwinding this unprecedented involvement in the financial sector. And as banks repay, as private investment comes in to replace the government’s investments, banks will be in a stronger … position to lend.”

Steve Bartlett, President and CEO of the Financial Services Roundtable, said, “Banks are looking for ways to increase lending although we don’t want to go back into the business of making bad loans, that’s what got us into trouble in the first place. Lending is down because loan demand is down and loan demand is down because of the economy. So, we have to move the economy up and then, lending will increase.”

Many banks claim that they are limited in lending due to factors out of their control, including the economy and tighter oversight regulators. Nevertheless, it could be left up to the banks to lend more in order to stimulate spending and economic expansion, if the economy is to respond positively in the coming months.