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Are U.S. commercial banks shirking their social responsibilities, happily agreeing to the Treasury’s capital investments but unwilling to lend? Here in Washington, the new 111th Congress seems to have adopted this view as an article of faith. On Friday, House Financial Services Chairman Barney Frank introduced legislation that would retroactively modify several provisions of the Troubled Asset Relief Program (TARP), adding cavalierly, “If they don’t like it, they can give the money back.”
Contract law and political posturing aside, since the recession began in December 2007, commercial bank lending rose 5.7%, impressive given the sharp economic contraction. Moreover, lending increased in all categories but home equity lending. And compared to the prior year? Commercial and industrial loans grew at about half the 11% rate in 2007, but total real estate lending grew just 0.6% less, and consumer loans grew at the same 8.9% rate, according the Federal Reserve.
(Click here for full-size version of table.)
Also, the Fed’s recent Consumer Credit Report (January 8, 2009) suggests that commercial banks are taking market share from finance companies, savings institutions, and especially securitized asset pools, which continue to contract materially. Until confidence is restored, closed securitization markets will inhibit improved residential mortgage and consumer credit availability.
Congress appears already to have concluded that it is easier (and as a public spectacle much more fun!) to beat bank executives with a plank than to address the underlying economic problems. Tragically, its actions seemed destined to diminish confidence rather than rebuild it.
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