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Kimberly Amadeo

Big Bank Lending Down 10-15%

By December 16, 2009

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A new Federal Reserve report shows that lending is down 15% from the nation's four biggest banks: Bank of America, JPMorgan Chase, Citigroup and Wells Fargo. Between April and October of this year, these banks cut their commercial and industrial lending by $100 billion, according to the most recent Treasury Department data. Loans to small businesses are down 4%, or $7 billion, during the same time period.

Lending from all banks surveyed showed the number of loans made  was down 9% from  last year (October 2008-October 2009). However, the outstanding balance of all  loans made went up 5%. This means banks are making larger loans to fewer recipients.

Why is bank lending down? A variety of reasons, depending on who you talk to. The banks says there are fewer qualified borrowers thanks to the recession. Businesses say the banks have tightened up their lending standards. However, if you look at the 18 months of potential foreclosures in the pipeline, it looks like banks are hoarding cash to prepare for future write-offs. As I mentioned yesterday, they are also sitting on $1.1 trillion in government subsidies.

After yesterday's meeting with President Obama, Bank of America pledged to increase lending to small and medium sized businesses by $5 billion in the next year.  That's after slashing lending by 21% ($58 billion) in the past six months.

This is just one more reason why I believe we will have a W-shaped recession. Bank lending is required to help businesses grow enough to create jobs. The public sector can only prod, stimulate and regulate the private sector. It can't replace it.  The Great Depression and the New Deal showed the government can't create enough jobs to get the economy moving again.

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Comments

December 22, 2009 at 6:28 pm
(1) Norm says:

Kimberly,
Another reason banks aren’t lending, is that they’re paying back the bailouts they got from the government, instead of lending the money to the public.
Norm

December 24, 2009 at 12:37 pm
(2) useconomy says:

Hi Norm,

That’s a great point. The banks don’t want government oversight or regulation, so they are paying back the loans instead of increasing lending.

I wish people would stop blaming Obama and Bernanke for this mess. The financial sector is the only entity large and powerful enough to get the economy rolling again. Government can only regulate and redistribute wealth – it can’t create it.

For more, see If You Must, Blame Big Banks.

Kimberly

December 25, 2009 at 6:37 pm
(3) Jay Hwang says:

Kimberly,

Do you know the reasons behind recent hike is treasury rates? Is it because of US Dollar regains its value?

Jay

December 26, 2009 at 1:14 pm
(4) Kimberly Amadeo says:

It is for several reasons. Investors are expecting inflation on down the road, so fixed-rate long-term Treasury bonds are not as attractive, thus depressing prices and raising yields. The dollar is strengthening temporarily, but long-term is expected to continue declining in value. Treasury yields must rise to compensate for expected loss in dollar value.

Kimberly

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