Are Banks Still Lending?
Kurt Brouwer September 30th, 2008
With all the inflammatory talk about banks not lending, these charts from the St. Louis Federal Reserve present a different picture. I’m sure lending to certain sectors has dried up, but overall activity still seems robust.
Commercial and Industrial Lending
Source: St. Louis Federal Reserve
The chart above shows weekly commercial and industrial lending activity from large commercial banks and it would appear that lending activity is far higher than it was a year ago or even at the beginning of the year. Activity peaked in the summer and now it is starting back up again. This chart goes through September of this year.
But, what about the consumer? Clearly, banks are not lending to consumers and consumers are not borrowing, right? Maybe that’s not quite accurate either in spite of media reports:
Consumer Lending
Source: St. Louis Federal Reserve
As we can see, consumer loans from commercial banks went up at least through the most recent data the St. Louis Fed had, which was August. The evidence is clear — at least through August, consumers were borrowing and commercial banks were lending them money.
Finally, what about real estate loans? We all know what the conventional wisdom is — that real estate lending has dried up. This final chart covers real estate loans from commercial banks and these loans did peak in April of this year, but lately activity has picked up. Even with the pullback, real estate lending is higher now than a year ago and higher than it was in the beginning of the year.
Real Estate Lending
Source: St. Louis Federal Reserve
I realize that this information contradicts the conventional wisdom we are hearing from the media and our political leaders, but these are facts, not rhetoric. It may well be that lending activity at banks is going to dry up, but there is no evidence from the St. Louis Fed that suggests such activity has already dried up. In fact, the evidence is that activity in all three areas is higher than it was at the beginning of the year.
- Business , Economy , Geopolitics , Money , Personal Finance
- Comments(10)
Did you enjoy this article?
The first and third graphs show a marked leveling off of lending that started last march. Is this significant? What do the graphs look like extended through the past several years or decades? If you have consistent growth over time and then growth stops that can have significant meaning. 0 growth or diminished growth over a significant amount of time can be just as meaningful as negative growth. What is the difference for example if the economy grows at .000001 % rather than -.000001%?
[…] (Link) […]
The second derivative (the change in the rate of change) looks horrible for two of those charts.
Also, that’s an extremely limited viewpoint in a sea of data. For example, what is the demand for C&I loans now that other sources such as the bond market have dried up?
Kurt, what’s your take on the dramatic spike in LIBOR?
[…] Ms. O is probably more than tired of having to pay for all of mama’s debts, if she does.? Banks are still lending, but they aren’t lending to those with bad […]
The reason for leveling off is more likely due to the fact that lending was increasing significantly faster than that of GDP, you cannot have unlimited unfettered spending at rates exceeding the capacity of production long before you have problems. Having a correction at some point in time is healthy. When you refuse to allow the economy to readjust downward after a long period of growth in areas things such as inflation happen, which is what happened in the housing market. Houses went up 5 times the rate of inflation and wages for 7 years running, now it is time to let the market bring houses back into line with what people can really afford.
I’m not trying to make the claim that everything is hunky dory with large commercial banks, but rather I am pointing out that credit has not dried up for commercial and industrial or even consumer borrowers, at least through the timer periods shown.
One argument for the bailout — or rescue plan — or whatever you want to call it, is that the liquidity crunch is going to hurt businesses. Well, based on these charts, business lending was pretty healthy through August - September 2008. That does not mean it will stay that way, but the widespread credit crisis for businesses or consumers is not apparent from this data.
The LIBOR spreads reflects inter-bank insecurity. They are not comfortable lending to each other due to fears of all the bad assets on the balance sheets. The LIBOR spread spiked on Monday and then came back down quite a bit. It’s still very high, but that reflects fear and loathing by and among banks.
The rate of change for the lending as illustrated by these charts may be tenuous, but that is precisely my point. Most of us would have thought they had weakened long ago, but banks were still lending at robust levels at least through August - September.
Folks:
I will give a REAL view of credit, as someone who worked in credit markets for over 12 years and now is an entrepreneur running a company with an exceptional (over 80 Paydex D&B) credit rating.
We have a legacy line of credit. Given our healthy cash flow and credit rating, we initially acquired that line fairly easily.
YESTERDAY (Nov 4th), I went to the bank to expand the line of credit. We did not need to expand it, just thought it would be the right thing to do.
I was BOMBARDED with requirements and a voluminous amount of documentation. The response was that “requirements from above, due to the subprime issue” created this new “policy”. REMEMBER, WE JUST WANTED TO EXPAND OUR CURRENT LINE, NOT ESTABLISH A NEW ONE.
ALSO, WE ARE A BUSINESS WITH IMPECABLE CREDIT AND SOLID CASH FLOW.
Banks have many ways to stop lending. One way is to simply say no. The
other one is to encumber the process with bureaucracy so people simply give up.
We are a successful business. The line of credit is to expand and create employment. The philosophy of the credit aid plan is not being followed.
FOLKS: The doors are closed at Chase. We should feel compelled to name the institutions that are receiving such aid and placing barriers on lending. If there is any
Bank Of America belongs on this list, and yes Chase too. These guys got funds from the bailout package, but not spreading the money to businesses that are in dire need of funds. Chase actually offered to turn my business line of credit into a term loan. BOA won’t even talk about extending the lines. Any ideas????
Something is surely wrong….I remember in the seventies and eighties, interest rates being high, but still available to ALL credit situations…..
Better score better rate…..Low score….higher rate….not a complete turn down.
Some banks need to take charge…..and actually start doing the right thing.
make sure you find the right banks is a good start. You can find higher rated banks that NEVER advertise…..you probably don’t even know they are there. Rate you bank…..
http://www.thestreet.com/screener/index.html?src=ratingsindex&tab=3
Sound like the Cloward-Piven strategy not only worked but is still in play and ticking along smoothly.
I agree with you, this government came out with the tax incentive to help us to afford our first home buying, me credit score is above nations average and have a 5 yr very steady job in a large corporation, i have saved 7500 dollars to help with closing and down payments and have a salary of over 30 grand a yr, i had a contract on a prop. for 80 grand but i had been denied credit for a home loan even by my own banks which i had been loyal and conducted business for many years.
My Advice to all of us, if they don’t want to lend in a good manner, they will in a forcefully manner, as of tomorrow I’ll be withdrawing all my funds and canceling all my banking relationships with those to banks ( BOA and Wachovia ) and put my money in a overseas bank or a small community bank. am very feed up with the way large corporations has been conducting their businesses lately. I had high hopes of accomplishing everybodies dreams of owning a roof over our heads but that dream seems to be fading away because of the banks not letting their bailout money out to help with the situation. balance their sheets my buttocks, they just want the money to keep paying bonuses to theyr CEO’s, CFO’s and and many other CO’s. my gosh !
Middle Class Uprising is coming your way sooner or later !