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Credit Conditions Improve, Recovery Could Lag
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Credit conditions and the state’s banking system are reasonably stable, according to testimony before the legislature Monday. But lawmakers were also warned that it may take time for a full recovery to set in. 

The legislature’s banks committee heard from some key individuals who are well placed to observe whether the green shoots of economic recovery really are starting to appear. First state Treasurer Denise Nappier - she last spoke to the panel in October, when she told them the state could face real problems accessing credit. Monday, Nappier told them the state has managed to sell $2b worth of bonds in the last six months. But she warned that legislators must be careful to balance the budget honestly to preserve the state’s reputation.

"The quality of Connecticut’s paper absolutely depends on our ability to follow through on the assurances we give to the capital markets and to buyers of our bonds, that we will refrain from the kind of budget gimmicks that have tempted other states during these trying economic times." 

While Nappier sought to reassure the panel both on pension investments and the state’s short term investment fund, she said as of the end of February, the value of the state’s investments had declined by 28%. However she says the recent market rally has improved that somewhat. Banking Commissioner Howard Pitkin told the committee that Connecticut borrowers are doing better than many at keeping up with their debts – at the end of last year only one-point-two percent of loans in the state were past due. Pitkin says only seven other states can beat that number. He also told the panel that no banks have yet failed in the state, despite growing failures elsewhere. 

"New England and Connecticut in particular, went through some very trying times back in the late eighties and early nineties, and I think the banking industry reached a new consensus on what was an acceptable level of risk going into the rest of the 90s and into 2000. That has served them well.  Their loan portfolios are in good quality and they have loan reserves that are high enough to handle all of their defaulted loans at present."

The health of Connecticut’s banks is of key interest to the business community. Marie O’Brien heads up the Connecticut Development Authority which channels public funds as loans to private enterprise, and also partners with private lenders. She says the agency’s seeing a big increase in loan demand – two or three times the normal level.

"Cashflow problems, or other deficiencies, collateral shortfall, are making it very difficult for our banks to tend to what our Connecticut businesses need. Banks everywhere are cutting back on lines of credit and creating a domino effect for businesses. Businesses need working capital." 

O’Brien also cautioned that while there may be economic improvement later this year, no-one yet knows what the longer term damage may be from this downturn, and how long a recovery may take to restore what’s been lost.