Wall Street's George Bailey Complex

Remember the woman who meekly asks to withdraw $17.50 from the Bailey Savings and Loan? The question prompted George Bailey to lean across the counter and plant on her cheek a big kiss — a heartfelt reward for not withdrawing her entire savings. I’m recalling, of course, the bank run scene from the movie classic It’s a Wonderful Life.

In a strange twist of fate, the credit officers at Wall Street’s commercial banking houses are finding that they relate more to George Bailey these days than to his well-heeled nemesis, Mr. Potter. Fearful of tightening credit and bank failures, a growing number of corporate treasurers have been tapping their Wall Street credit lines, even though they don’t actually need the cash. They are basically hording it to help weather what has become a rather unpredictable business environment.

As those charged with gauging just how far specific lines of credit will likely be drawn down, bank treasurers and credit executives find themselves having some unsettling conversations with companies willing to pay extra fees just to draw deeper into their credit lines. It’s a situation that would have been unthinkable 12 months ago. Then again, so many developments within the past 60 days would have been unthinkable.

“The management of a lot of these companies, I’m convinced, never knew what their traders were buying and what the risks were,” Michael Bloomberg explained in a recent TV interview. As mayor of New York City and founder of Bloomberg Financial Services, Bloomberg has not hesitated to speak out lately about the failure of Wall Street’s upper management to monitor the behavior of its employees.

“The first thing we need is more disclosure. The problem is that nobody knows what any institution owns and what the terms of the securities they own are and what they’re worth,” says Bloomberg.

Be that as it may, if 12 months ago we had published a story saying that the management of Wall Street’s elite firms did not know what their traders were buying and selling, we would at the very least have had some spirited conversations with their media relations people.

Meanwhile, back to the liquidity issue, where as more credit lines are being drawn down, banks are making fewer new loans. For the moment, one way to reverse this dangerous development may be for the banks to make like George Bailey and pucker up.