Saturday, January 19, 2008

Commercial Bank Loans At Record-High

The chart above (click to enlarge) shows the series "Commercial and Industrial Loans of Weekly Reporting Large Commercial Banks" from 1988-2008, available from the Federal Reserve via FRED. A couple key points:

1. As of the first week of January, commercial bank loans are at a record high of $760 billion.

2. It was only three months ago, in early October 2007, that commercial bank loans surpassed the previous record high commercial loan volume of $722 billion set back in September 2000 (a banking milestone that went unreported).

3. Compared to many economic and banking variables that are reported only monthly or quarterly, often with long lags, commercial bank loans are reported weekly, with a lag of only a few weeks, and therefore provide important, current, and up-to-date information on commercial bank lending.

4. It's true that "commercial and industrial loans outstanding" are considered to be a lagging indicator by
The Conference Board, but it's also true that commercial loans started declining at the onset of both of the last two recessions (see chart above).

Bottom Line: Given the continuing strength of commercial bank lending at record-high levels through early January, it's highly unlikely that the U.S. economy has entered into a recession. I'll continue to monitor this important economic variable.

4 Comments:

At 1/19/2008 11:50 AM, Anonymous Anonymous said...

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Professor Perry, if we are to consider historical charts to predict the future perhaps it is a reasonable idea to consider contradictory "evidence" as well.

For example doesn't the Real Estate Loans at All Commercial Banks, Monthly, Billions of Dollars, Seasonally Adjusted (1947-01-01 through 2007-12-01) percent change from a year ago chart shows that a recession is more likely than ever.

The last time we saw numbers this low was in the recession of 2001.

 
At 1/19/2008 12:21 PM, Anonymous Anonymous said...

market caps, all in billions.

Merrill Lynch: 44.40
Lehman: 28.32
Morgan Stanley: 47.65
Goldman Sachs: 82.19
Citibank: 121.79
Bank America: 159.65

Ambac Assurance Corp. was lowered two levels to AA and may be reduced further, New York-based Fitch said yesterday in a statement. The downgrade ``reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction,'' Fitch said.

Without its AAA rating, New York-based Ambac may be unable to write the top-ranked bond insurance that makes up 74 percent of its revenue. Ambac may quit the business or sell itself, said Robert Haines, an analyst at CreditSights Inc., a bond research firm in New York. The downgrade throws doubt on the ratings of $556 billion in municipal and structured finance debt guaranteed by Ambac.

Tuesday we crash.

 
At 1/19/2008 12:46 PM, Blogger Mark J. Perry said...

Anon 11:50 a.m.:

1. We also had similar percentage declines in real estate loans in the 1960s, 1980s and 1990s and 2004 when there was NOT a recession though.

2. Housing prices have fallen, unit sales have fallen, and banks have tightened lending standards, so of course the real estate loan volume (in dollars) would be affected.

3. We had a major banking crisis in 1987-1988 with 500 banks failing per year, and still did NOT have a recession. It will take more than a subprime crisis to pull the entire economy into a recession, IMHO.

 
At 1/24/2008 12:59 AM, Anonymous Anonymous said...

Couldn't the hike in loan volume on the books of banks be due to the fact that the lenders have been forced to take loans back onto their books since the credit crunch, rather than due to originations? From the Wall St Jnl lately:

"Overall, lending to businesses has actually increased in recent months. But that's not due to easy credit. Commercial and industrial lending by commercial banks in the U.S. rose to $1.45 trillion as of Jan. 9, on a seasonally adjusted basis, up 13% from July and the start of the credit crunch, according to data from the Federal Reserve. Much of that increase can be attributed to banks that were forced to absorb debt that they couldn't sell in secondary markets, and the impact of companies drawing down lines of credit when other types of financing started to dry up."

 

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