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Those Are Some Zombies
Banks aren't just lending--they're also taking share from their shadow-banking competitors

Gary Townsend
Posted 04/13/2009
Hill-Townsend Capital
gary.twnsnd@gmail.com

If U.S. commercial banks are as weak as many allege – insolvent, filled to the brim with “toxic” assets, over-leveraged, etc. – why is it that just released 1Q09 lending data reveal no particular capital or other constraint on the banks’ lending abilities?

Overall last quarter, outstanding commercial bank loans and leases declined 1.37% to $7.1 trillion, reasonably robust in an economy that shrank an estimated 3.0%. And while commercial and industrial loans declined 2.5%, real estate and consumer lending grew 0.1% and 1.3%, respectively, with the largest gains in revolving home equity (up 1.8%) and credit cards (+1.9%). Impressively, since the recession began in December 2007, U.S. commercial bank loans and leases have increased 4.0%. Of the largest categories, commercial and industrial lending rose 7.8%, real estate lending increased 6.2%, and consumer lending soared 10.6%.

Of particular note, the quarter showed an especially welcome recovery in interbank lending, up nearly 24% over 2008’s last quarter. On the liabilities side of the balance sheet, U.S. commercial deposits were a record $7.38 trillion, up 7.2% in the year-ended March 2009.

So what’s behind the false perception that the banks aren’t lending? The Federal Reserve’s consumer credit reports continue to show contraction in non-bank finance company credit outstanding. Securitized asset pools shrank again this past quarter.

Capital constrained? Nonsense. The better analysis is that U.S. commercial banks are not only able to lend, but that they’re taking ample market share from non-bank financiers and the shadow banking system.

What do you think? Let me know!

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adamrust Posted On 4/13/2009 11:50:08 AM

Yes, in the aggregate lending appears to be fairly steady, you are ignoring the big story. Banks are lending to other banks. Interbank lending is up 17.88 percent! The next closest category is credit card lending, at just 1.92 percent. Oh, and credit card lending is as much a product of consumer demand than it is of lending supply. Real estate lending is slightly up, but how much of that is a product of low-interest rates that drive up refinance lending? That is lending, but it does not have the same stimulus. There are no construction jobs with refi loans. In many instances, banks are just lending across their own corporate families. In some instances, bank holding companies are taking TARP funds but as Harvard notes, they are not transferring to their bank subs. I would post a direct link with html, but this site won't permit that. Go to: http://blogs.law.harvard.edu/corpgov/2009/02/18/the-bailout-is-robbing-the-banks

adamrust Posted On 4/13/2009 11:50:17 AM

Yes, in the aggregate lending appears to be fairly steady, you are ignoring the big story. Banks are lending to other banks. Interbank lending is up 17.88 percent! The next closest category is credit card lending, at just 1.92 percent. Oh, and credit card lending is as much a product of consumer demand than it is of lending supply. Real estate lending is slightly up, but how much of that is a product of low-interest rates that drive up refinance lending? That is lending, but it does not have the same stimulus. There are no construction jobs with refi loans. In many instances, banks are just lending across their own corporate families. In some instances, bank holding companies are taking TARP funds but as Harvard notes, they are not transferring to their bank subs. I would post a direct link with html, but this site won't permit that. Go to: http://blogs.law.harvard.edu/corpgov/2009/02/18/the-bailout-is-robbing-the-banks

fsda Posted On 4/13/2009 12:00:34 PM

"Of particular note, the quarter showed an especially welcome recovery in interbank lending, up nearly 24% over 2008’s last quarter. On the liabilities side of the balance sheet, U.S. commercial deposits were a record $7.38 trillion, up 7.2% in the year-ended March 2009."

fsda Posted On 4/13/2009 12:07:20 PM

"Of particular note, the quarter showed an especially welcome recovery in interbank lending, up nearly 24% over 2008’s last quarter. On the liabilities side of the balance sheet, U.S. commercial deposits were a record $7.38 trillion, up 7.2% in the year-ended March 2009."

RetailBanker Posted On 4/13/2009 12:33:51 PM

You are missing the boat on teh Home Equity and Credit Card numbers. Those are just increasing draws on existing lines, actually adding to the risk of those portfolios as utilization percentages begin to skyrocket. There is no incremental lending going on. You have drawn a totally incorrect conclusion. Lending is not increasing - even in the commercial space. Drawn on existing credit facilities is increasing, as people and industry attempt to access all their credit before it is frozen.

Diane Roehrig Posted On 4/13/2009 12:52:25 PM

The community banks have never stopped lending. The crux of the problem is centered around Mr. Geithner"s Federal Reserve Bank of New York members and their buddies. The truth is that without the Fed publishiing the actual money supply numbers, no one can tell who is dissembling and/or the real source of the problem. This "emergency" orchestration began some time ago. None of this could have happened without complicity among all the parties (Fed, Treasury, and White House) to restrict access to information that has always been available to the public and the Congress.

jsc173 Posted On 4/13/2009 2:11:20 PM

The "elephant in the room", and it's an 8000 pounder, is the majority of what used to be "the mortgage market" isn't there anymore. The loan broker-to-wholesale aggregator-to-Wall Street channel, which used to be way more than half the market isn't there anymore. Needless to say, the portion of that business and even loans loans purchased for banks' portfolios that were subprime, option ARM, interest-only and Alt-A are gone. What is there is the "churn" of conventional refinance volume and that is 3-4x what it was a two years ago, while purchase volume is maybe 70% of what it was two years ago (based on FNMA estimates). The numbers look impressive, but all the volume is very narrowly focused and not at all encouraging. Until banks actually start adding to their portfolios again, the market is totally locked up by Fannie and Freddie.

mopedman Posted On 4/13/2009 4:17:34 PM

So what’s behind the false perception that the banks aren’t lending? This is an easy one Gary, it's people making and going to make much more money in the stock market and in many cases it's the same people telling you not to buy them...and who put a tracking cookie on your computer to see who else you are asking for advice. The same people who graciously let you search stocks on their sites which tells them exactly where the interest (the other kind) exactly is. We're 'Living in a digital World'. If you don't believe me go to Google maps and look at a real picture of your house. The little man will take you there. Now I see WFC may make record profits..after all the things I've read. Rumors have come a long long way since the days at the water fountain haven't they?

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