Federal Reserve Governor Randall Kroszner said that small businesses are having a difficult time in accessing credit given the current economic environment.
Testifying before the U.S. House Small Business Committee in Washington, DC, Kroszner said that credit to small businesses has tightened substantially and as a result, access to credit now comes at a higher cost.
"Commercial banks, the most common source of credit for small businesses, have generally both imposed more-stringent credit standards and increased interest rate spreads and fees," Kroszner said.
Kroszner said that cumulative rate cuts should lower lending costs and stimulate business activity for small firms.
"The Federal Reserve has continued to address ongoing problems in interbank funding markets by expanding its existing lending facilities, increasing the quantity of term funds that it auctions to banks, and accommodating greater demand for funds from banks and primary dealers," he said.
Kroszner added that the measures taken by the Federal Reserve may be indirect, but are nevertheless real.
By Steve Stecyk and edited by Nancy Girgis
©CEP News Ltd. 2008