Sunday, June 12, 2011

Business Loans at Commercial Banks Continue to Rise

Commercial and Industrial loans in the banking system continue to rise.  Over the past thirteen week period business loans at all commercial banks in the United States increased by almost $37 billion.  These loans began a slight uptick last November and have been rising modestly since then.

Over the past four weeks, commercial and industrial loans have risen by about $16 billion. 

Up until recently the increase has been solely in the largest twenty-five banks in the country.  These large banks are still making the largest additions to the growth in business loans, but in the latest four-week period there seems to be some life in this kind of lending in the rest of the banking system. 

Of the $37 billion increase in business loans over the past thirteen weeks, $29 billion has come from the largest banks while $3 billion has come in the smaller banks and almost all of this latter increase came in the past four weeks. 

Real estate loans continue to drop although some leveling out in the larger banks seems to have occurred over the past month.  All real estate loans dropped by $65 billion over the last three months although they dropped by only $6 billion over the last month. 

Again, the largest balance sheet movements in the banking system came in cash assets. 

Over the past thirteen weeks, the cash assets in the banking system rose by about $415 billion while the total assets in the banking system rose by almost $500 billion. 

In the last four weeks, the cash assets in the banking system rose by a little less than $160 billion while the total assets in the banking system rose by about the same amount.

QE2 continues fund the banking system. 

There are some really important differences in the rise in cash assets, however, 

Over the past thirteen-week period, the cash assets at the largest twenty-five domestically chartered commercial banks dropped by $42 billion.  At the smaller domestically chartered banks, cash assets fell by $2 billion.

Cash assets at foreign-related financial institutions rose by almost $460 billion during this same time period! 

Over this past thirteen week period it appears as if all the excess reserves the Federal Reserve pumped into the banking system went directly into foreign-related financial institutions and…and…$44 billion of excess reserves already in the banking system found its way from domestically chartered banks into the hands of the foreign-related financial institutions!

Loans and leases at all domestically chartered commercial banks dropped by a small amount during this period of time. 

The summary: business lending seems to be getting stronger in the United States, but it is the only sign of life in the lending area in the domestically chartered commercial banks. 

The funds the Federal Reserve is pumping into the financial system is going directly into foreign-institutions in the United States and is going off-shore. (

So much for monetary policy stimulus!


Flow5 said...


Stone & McCarthy Research Associates:

"How Did the Reserves or Cash Assets Get to Foreign Banks Operating in the US?

The skewing of the distribution of reserves towards foreign banks operating in the US was not because the LSAPs were disproportionately from these banks or from the clients of these banks.

Rather the Eurodollar market provided a vehicle enabling a skewing of reserve balances towards foreign banks operating in the US.

Effectively the AFFILIATED FOREIGN BRANCH of a US bank (whether a domestic or foreign institution) would BORROW DOLLARS in the EURODOLLAR MARKET. A Eurodollar is nothing more than a dollar denominated deposit at a bank outside the US.

The bank holding the Eurodollar deposit will ultimately have a dollar denominated claim against a bank domiciled in the US. That US bank in turn holds reserve balances at their local Federal Reserve Banks.

When Eurodollar deposits move from one foreign bank to another, the claim against the original US bank follows the eurodollar deposit.
If a bank domiciled in the US borrows dollars from a bank outside the US, including its own foreign branch, effectively what happens is the reserve balance of the US bank underpinning the Eurodollar account is REDUCED, and the reserve account of the borrowing bank in the US is INCREASED.

Overall US bank reserves are left unchanged, but the DISTRIBUTION OF THOSE RESERVES is changed from one bank in the US to another, possibility even from the books of one Federal Reserve Bank to another."

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