Bank Lending Keeps Dropping

[girl gone mad]

Bank Lending Keeps Dropping
http://online.wsj.com/article/SB124019360346233883.html#mod=testMod">The Wall Street Journal

Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector.

According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

The total dollar amount of new loans declined in three of the four months the government has reported this data. All but three of the 19 largest TARP recipients with comparable data originated fewer loans in February than they did at the time they received federal infusions.

The Journal's analysis paints a starker picture of the lending environment than the monthly snapshots released by the government and is a reminder of the severity of the credit contraction. One reason for the disparity: The Treasury crunches the data in a way that some experts say understates the lending decline.

The Obama administration is scrambling to defuse a backlash surrounding the bank bailout. Political disquiet over banks' perceived lack of lending, as well as their spending on bonuses and perks, has provoked skepticism about the administration's ability to revitalize the banking system. Any evidence that banks are lending less could reinforce criticism of the program, and put pressure on plans crafted by Treasury to unfreeze credit markets and support bank balance sheets. With bailout funds dwindling, one option the Treasury might pursue is to turn loans into common equity.

[Uben]

1. Doesn't logic dictate.....

....that fewer loans would be made during a depression because fewer people are working? I can see where refinancing would decline as well because of the risk factors involved. We can't expect banks to practice responsible lending and at the same time criticize them for not making loans that are risky. In this economic environment, almost any loan takes on a level of risk by the mere fact that job loss continues to grow and retail sales are way down. I realize a lot, if not most, businesses borrow a lot to cover day-to-day expenses, but if they are having trouble paying back those monies due to depressed sales, they are a genuine risk, and one the banks may feel are not worthy. Risky and irresponsible lending practices got us into this mess in the first place, and we shouldn't rush to jump back in to the same pot of boiling water!

[BelgianMadCow]

3. valid point! The whole idea of "restarting lending" as THE GOAL

is a bit strange given the cause, and if you want people to spend more you gibe them more. (money/social security/job security etc)

The "thawing of the credit markets" makes me even more queasy.

[northernlights]

4. also less mortgage refinancing is possible

when so many homes are under water.

[girl gone mad]

5. Which is why the whole premise of TARP..

was flawed from the beginning.

[BelgianMadCow]

2. The pile of cash they're sitting on on the other hand...

and guess what, come depression..cash is king. YEAH, more money to buy others wOOt and they were already too big to fail.

They laugh all the way to the bank. Oh, wait...laugh all day in the bank, that is.

[Uben]

6. In defense of the banks..........

.......and believe me, I hate to take that side, they are being scrutinized by the so-called "stress test" to make sure their solvency is sustainable. In order to do that, a lot of them HAVE TO build back up their reserve accounts to fall in line with industry standards. I understand the logic behind their actions, and I understand why they needed the infusion of cash to help build up their reserves. I just hope the "lack of available loans" is due to their attempt to be responsible lenders.

[notesdev]

7. Good! Lending SHOULD drop

the whole problem is too much debt with too little income supporting it - all around, on all levels.

[eilen]

8. Exactly

Businesses who have to borrow constantly to stay afloat are over-leveraged and should downsize or operate more conservatively. I realize that this may lead to increased job loss but as the fat lady sang, the party is over.