Tuesday, January 06, 2009

Banks Don't Need To Be Forced to Lend

Banks are in the lending business: They do not need to be forced to lend. And contrary to popular and political opinion, banks have not stopped lending. Despite the recent financial market turmoil, a declining GDP, and an increase in loan-loss reserves, commercial bank lending actually grew $336 billion, or 4.9%, from August to Dec. 24, according to Federal Reserve data (see chart above). While lending dictates or other restrictions may be tempting, the Obama administration must discourage Congress from imposing them on recipients of TARP investments.

~Bert Ely in today's WSJ: "Banks Don't Need to Be Forced to Lend"


At 1/06/2009 11:59 AM, Anonymous Anonymous said...

This is a great point and one that our elected officials and the general public do not understand. The reason this myth persists is due to the virtual shutdown in the securitization market. Prior to the meltdown, banks would originate loans (mortgage and commercial) and place them into CLO and CDO vehicles. This source of funds was so vast that the fact that it is no longer there is making it seem as if no credit is being extended anywhere. The reality is that banks alone have limited balance sheets and so, while they are doing more today than they did last year, it appears as if lending has been completely shut off.

Such is the price of excessive leverage over an extended period.

At 1/08/2009 9:26 AM, Anonymous Anonymous said...

Most of the increase may be due to nonbanks converting to bank charters.


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