The number of problem banks, as listed by the FDIC, continued to rise in the third quarter of 2010. The number went from 829 at the end of the second quarter to 860 in the third quarter.
Forty-one banks failed in the third quarter, an average of about 3.2 banks per week. A total of 149 banks have been closed through the first three quarters of 2010, an average of 3.8 per week. Thus, the pace of bank closings has been relatively steady throughout the year, somewhere between 3 and 4 banks per week.
The total number of FDIC-insured commercial banks in the system was 7,760 at the end of the third quarter. This is down from 7,830 at the end of the second quarter and 8,195 at the end of the second quarter of 2009. So, the number of banks in the system dropped by 70 banks in the third quarter. Since June 30, 2009, the number of banks in the system has fallen by 435.
The decline in the number of banks in the banking system is not all failures as some banks are merged into other banks before the bank is closed by the FDIC. For example, in the third quarter of 2010, 30 mergers took place.
So, the industry is shrinking by bank failings and by the consolidation of healthy banks with banks that are not in very good shape. From June 30, 2009 to June 30, 2010, the number of banks in the banking system dropped by 365 banks, an average of 7 banks per week. In the third quarter of 2010 the number of banks dropped by 70 banks, an average of about 5.5 banks per week.
This fact raises concerns not only about those banks that are listed on the problem list, but what about those banks that are in serious trouble but do not “qualify” to be on the FDIC’s problem list?
How many surprises are out there?
Wilmington Trust, in Wilmington, Delaware, was considered to be doing OK. Then, the bombshell hit. Wilmington Trust ended up being sold at a 45% discount. (See http://seekingalpha.com/article/234027-wilmington-trust-sold-at-45-discount.)
How many more banks in the system are facing the same fate as Wilmington Trust?
Earlier this year Elizabeth Warren told Congress that as many as 3,000 commercial banks were facing real problems over the next 18 months.
My prediction is that the total number of banks in the banking system will drop to 4,000 or so over the next five years. This is down from 7,760 at the end of the third quarter of 2010, a reduction in the number of banks of 3,760 banks or of approximately 750 banks per year for the next five years.
There is good news:
“Banks and savings institutions earned $14.5 billion in the third quarter, $12.5 billion more than the industry’s $2 billion profit a year ago, the FDIC said yesterday. The third-quarter income was below the $17.7 billion and $21.4 billion reported in this year’s first and second quarters, but agency officials said the shortfall was attributable to a huge goodwill impairment charge at one institution.
A reduction in loan-loss provisions was the primary factor contributing to third-quarter earnings…. While third-quarter loan-loss provisions were still high, at $34.3 billion, they were $28 billion -- or 44.5 percent -- lower than a year earlier. Net interest income was $8.1 billion -- or 8.1 percent-- higher than a year ago, and realized gains on securities and other assets improved by $7.3 billion, officials said.”
This was from the American Bankers Association release, “Newsbytes”.
But, the good news was not for all sectors of the banking industry. As I have been reporting in my posts, the largest twenty-five banks continue to prosper at the expense of the smaller banks. One must report that the “good news” presented above is for the industry as a whole. For the largest twenty-five banks, the news is “good”. For the other 7, 735 banks…the results are really “not-so-good”.
And this is why the worry is focused on the smaller banks.
We keep getting bits of news like that reported in the NYTimes this morning, “Large Banks Still Have a Financing Advantage” (http://www.nytimes.com/2010/11/24/business/24views.html?ref=todayspaper):
“What happened to ending ‘too big to fail?’ That was one objective of the financial overhaul bill, the Dodd-Frank Act, that was passed this year. Central to the legislation were rules intended to make big banks less exciting and safer. It also created an authority meant to smoothly wind down even the largest institutions without greatly disrupting the financial system.
Five months after the bill’s passage, big banks should have lost at least some of their financing advantage over smaller rivals. But as the latest quarterly report from the FDIC shows, too big to fail is still very much alive and well.”
The point being made is that the average “cost of funding earning assets” for commercial banks in excess of $10 billion (109 banks out of the 7,760 banks in the system) was 0.80 percent. The average cost of the 7,651 smaller banks was an average of 1.29 percent so that the bigger banks had a 49 basis point advantage over the smaller banks. (Note that the gap was 69 basis points a year ago.)
The average cost of funding earning assets was even lower for the largest 25 banks in the country!
It seems like everything the policy makers are doing is benefitting the largest banks in the country.
And, what is being done for the smaller banks…the other 7,735 banks?
The Federal Reserve is pumping plenty of liquidity into the banking system so that the FDIC can reduce the number of banks in the banking system as smoothly as possible. (See my post “The Real Reason for Fed Easing”: http://seekingalpha.com/article/237834-the-real-reason-for-fed-easing-debasement-inflation.)
In reducing the number of banks in the banking system we don’t want disruptions and we don’t want panic. If this is the goal of the Federal Reserve and the FDIC, then they are doing a good job. The bank closure situation has, so far, neither resulted in major disruptions to the financial system or the economy or panic over the state of the banking industry.
The dismantling of the former United States banking system is going quite smoothly, thank you.
The future United States banking system is going to look entirely different. What might that banking system look like? Try the Canadian banking system or the banking system in Great Britain…a few very large banks dominate these systems. Is that what the United States system is going to look like?
Showing posts with label troubled banks. Show all posts
Showing posts with label troubled banks. Show all posts
Wednesday, November 24, 2010
Monday, September 13, 2010
Still No Life in Banking
Over the last two months I have been hoping that the smaller banks in the United States were starting to lend a little bit again. I was even looking for “Green Shoots”. (See http://seekingalpha.com/article/220685-green-shoots-in-smaller-bank-lending.)
My latest review of the commercial banking data released by the Federal Reserve gives little indication that things are picking up through August. Total assets at the smaller domestically chartered banks in the United States (defined as all domestically chartered commercial banks except the largest 25) grew by a little over $11 billion in the last five weeks. However, the cash assets of these banks rose by slightly more than $8 billion of this total. Only about $1 billion went into bank loans.
The total assets at the 25 largest domestically chartered commercial banks fell by about $26 billion during this time period, but the cash assets held by these banks dropped by even more. Cash assets fell by about $41 billion. What asset class rose? The securities held by these banks rose by almost $23 billion.
At these large banks, Treasury and Agency securities increased by about $210 billion over the last year. These banks can acquire funds at interest rates approaching zero percent and purchase securities with no credit risk and earn several hundred basis points spread on the transaction. And, there is little or no interest rate risk because the Federal Reserve has stated that it will keep short term interest rates extremely low for “an extended time.”
One can see this arbitrage situation setting up over the last year as these large commercial banks have changed the way they have financed their assets relying on less expensive sources of funds and substituting cheaper and cheaper liabilities.
No wonder the large commercial banks have been producing a lot of profits while at the same time building up their loan loss reserves!
Why should commercial banks lend when they have a riskless way to make money?
Business loans? Commercial and Industrial loans are down by more than 12% at all banks, from August 2009 through August 2010. At large commercial banks, however, C&I loans are down by even more, dropping at a 14%, year-over-year rate. In just the last 13 weeks, these loans are down by almost $12 billion which is about one-tenth of all the business loan portfolio in the banking system.
Commercial real estate loans are down by more than $140 billion. Of this drop more than half of the decline was registered at the smaller commercial banks. Of course, this is where people are expecting a lot more trouble over the next twelve months or so.
Surveys have indicated that banks are easing up on lending terms. Well, that may be true, but this is still not resulting in any jump in commercial bank lending.
We are told that businesses and consumers are reluctant to borrow. I believe that this is true. There are two reasons for this. First, many businesses, families, and individuals are still reducing the debt load they had built up over the last decade or more. With the economy so weak, it still represents a substantial risk to go further in debt given the uncertainty about future prospects.
In addition, many of the companies that are better off are accumulating large amounts of cash balances. The play here, I feel, is that mergers and acquisitions will pick up over the next year or so. Analysts are still shaking their heads about all the activity that took place on this front in August. My guess is that companies believe that they can achieve better market share and even have a chance to gain sustainable competitive advantages in their markets by building scale through acquisition of financially “weak” companies as opposed to attempting to expand on their own at this time. Keep the cash so that you can move as quickly as possible when the time is right.
Bottom line: it seems as if very few banks want to extend money to businesses at this time; and very few institutions (except for the federal government) want to put on a lot more debt at this time.
There will be no recovery of any strength without a pickup in commercial bank lending. I have written about this earlier: http://seekingalpha.com/article/218027-no-banks-no-recovery. This is one reason why I am skeptical of the spending and tax-cutting proposals presented by President Obama last week. The economy is in a position where debt positions, both in the financial and non-financial industries have to be worked out and this will take time.
I continue to believe that the Federal Reserve will continue to keep short term interest rates at or near their very low current levels until the commercial banking industry stabilizes. The Fed and the FDIC are doing a good job in helping the smaller banks work through their problems. Still, there are a sizeable number of the smaller banks that are still in serious trouble and asset values are still the problem. As mentioned above, there are anticipated difficulties ahead in the commercial real estate area and some investment portfolios are still substantially under-water.
With all these difficulties, why should these smaller banks, in aggregate be expanding their loan portfolios? The main thrust in the commercial banking sector over the next twelve to eighteen months is still survival and consolidation.
My prediction still remains: over the next five years or so the largest 25 domestically chartered banks in the United States will come to control about 75% of banking assets in America, up from about 67% at the present time.
My latest review of the commercial banking data released by the Federal Reserve gives little indication that things are picking up through August. Total assets at the smaller domestically chartered banks in the United States (defined as all domestically chartered commercial banks except the largest 25) grew by a little over $11 billion in the last five weeks. However, the cash assets of these banks rose by slightly more than $8 billion of this total. Only about $1 billion went into bank loans.
The total assets at the 25 largest domestically chartered commercial banks fell by about $26 billion during this time period, but the cash assets held by these banks dropped by even more. Cash assets fell by about $41 billion. What asset class rose? The securities held by these banks rose by almost $23 billion.
At these large banks, Treasury and Agency securities increased by about $210 billion over the last year. These banks can acquire funds at interest rates approaching zero percent and purchase securities with no credit risk and earn several hundred basis points spread on the transaction. And, there is little or no interest rate risk because the Federal Reserve has stated that it will keep short term interest rates extremely low for “an extended time.”
One can see this arbitrage situation setting up over the last year as these large commercial banks have changed the way they have financed their assets relying on less expensive sources of funds and substituting cheaper and cheaper liabilities.
No wonder the large commercial banks have been producing a lot of profits while at the same time building up their loan loss reserves!
Why should commercial banks lend when they have a riskless way to make money?
Business loans? Commercial and Industrial loans are down by more than 12% at all banks, from August 2009 through August 2010. At large commercial banks, however, C&I loans are down by even more, dropping at a 14%, year-over-year rate. In just the last 13 weeks, these loans are down by almost $12 billion which is about one-tenth of all the business loan portfolio in the banking system.
Commercial real estate loans are down by more than $140 billion. Of this drop more than half of the decline was registered at the smaller commercial banks. Of course, this is where people are expecting a lot more trouble over the next twelve months or so.
Surveys have indicated that banks are easing up on lending terms. Well, that may be true, but this is still not resulting in any jump in commercial bank lending.
We are told that businesses and consumers are reluctant to borrow. I believe that this is true. There are two reasons for this. First, many businesses, families, and individuals are still reducing the debt load they had built up over the last decade or more. With the economy so weak, it still represents a substantial risk to go further in debt given the uncertainty about future prospects.
In addition, many of the companies that are better off are accumulating large amounts of cash balances. The play here, I feel, is that mergers and acquisitions will pick up over the next year or so. Analysts are still shaking their heads about all the activity that took place on this front in August. My guess is that companies believe that they can achieve better market share and even have a chance to gain sustainable competitive advantages in their markets by building scale through acquisition of financially “weak” companies as opposed to attempting to expand on their own at this time. Keep the cash so that you can move as quickly as possible when the time is right.
Bottom line: it seems as if very few banks want to extend money to businesses at this time; and very few institutions (except for the federal government) want to put on a lot more debt at this time.
There will be no recovery of any strength without a pickup in commercial bank lending. I have written about this earlier: http://seekingalpha.com/article/218027-no-banks-no-recovery. This is one reason why I am skeptical of the spending and tax-cutting proposals presented by President Obama last week. The economy is in a position where debt positions, both in the financial and non-financial industries have to be worked out and this will take time.
I continue to believe that the Federal Reserve will continue to keep short term interest rates at or near their very low current levels until the commercial banking industry stabilizes. The Fed and the FDIC are doing a good job in helping the smaller banks work through their problems. Still, there are a sizeable number of the smaller banks that are still in serious trouble and asset values are still the problem. As mentioned above, there are anticipated difficulties ahead in the commercial real estate area and some investment portfolios are still substantially under-water.
With all these difficulties, why should these smaller banks, in aggregate be expanding their loan portfolios? The main thrust in the commercial banking sector over the next twelve to eighteen months is still survival and consolidation.
My prediction still remains: over the next five years or so the largest 25 domestically chartered banks in the United States will come to control about 75% of banking assets in America, up from about 67% at the present time.
Friday, April 23, 2010
The Changing Banking System
I remember when there were more than 14,000 banks in the United States. I also remember when there were 12,000 banks in the banking system. Even in those days, the financial industry only accounted for no more than about one-sixth of total domestic profits in America.
Now there are about 8,000 banks in the United States and about one in eight of these banks is either on the problem bank list of the FDIC or in rather serious trouble. The FDIC is closing three to four banks a week and it is expected to continue on this pace for another twelve to eighteen months.
The biggest banks in the banking system are doing well, profit wise. The reported earnings this week of JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and so on just re-confirmed the recovery of these giant institutions. Of course it is not the banking side of the business that is producing these results, although their loan problems seem to be diminishing. It is the trading side of the business that is creating such significant gains subsidized by the Federal Reserve zero interest rate policy. This is the “quiet” bailout of these banks because it does not require Treasury funds to support the effort and it helps bank assets improve so that insolvency becomes less and less of a problem.
Furthermore, regional banks appear to be recovering. PNC and BB&T have been doing well, but those lagging behind, Fifth Third Bancorp, KeyCorp, SunTrust Banks, and Huntington Bancshares all seem to be showing improvements which respect to their problem loans. PNC and BB&T actually reported profits for the first quarter, $671 million for PNC and $194 million for BB&T. So, the improvements continue down the supply chain (http://online.wsj.com/article/SB20001424052748703876404575200240959419542.html#mod=todays_us_money_and_investing.)
We are still waiting for the small- to medium-sized banks to start perking up. But, this is where more of the problem or troubled banks lie and where most of the bank closures or acquisitions are going to be.
This fact points to one of the major changes taking place in the banking system. We are going through another period where the number of banks in the banking system is declining. I would not be surprised at all if the number of banks dropped to the 5,000 to 6,000 range over the next few years.
This movement will continue the consolidation of the banking industry in the United States. Right now, $2 out of every $3 in domestic banking assets resides in the largest 25 banks in the country. These are the huge banks mentioned above and the large regional banks mentioned above.
How high might this concentration go? I believe that regardless of what Congress does with respect to financial reform and trying to limit the size of banks that the total amount of domestic assets residing in the largest 25 banks in the country will go to about $4 out of every $5 in the relatively near future. This means that there will be at least 5,000 banks competing for that other $1!
Another change that is taking place in the United States banking system is the presence of more and more foreign banks. This seems to be a perfect time for foreign owned banks to pick up acquisitions in the United States and not only gain size but also gain presence in different regional markets. In this respect, note the article “Foreign Firms Scoop Up Failed U. S. Banks” in the Wall Street Journal, http://online.wsj.com/article/SB10001424052748704830404575200134085458128.html#mod=todays_us_money_and_investing. Canadian banks are especially taking advantage of the banking situation in the United States, but banks in Japan and other countries are seizing the opportunity as well.
In March, foreign-related institutions controlled over 11% of the assets in the United States banking system. This is up substantially from thirty years ago and is expected to climb further in the near future. My guess is that this number will be in the 15% to 20% range over the next five years or so. And, these assets will not be owned by small- or medium-sized financial organizations.
This is the problem now faced by President Obama and the Congress in terms of financial reform. I just don’t see these trends reversing themselves. And, as banks get bigger they will also be controlling more and more of the banking assets in the United States. And, as the banks get bigger they will continue to move into more and more areas of the financial market and they will continue to create more and more financial innovations.
And, if they are not done in the United States they will be done somewhere else in the world for commercial banking is, in fact, worldwide and not just the playing field of Americans. Big foreign banks are becoming a bigger part of the United States banking scene just as big United States banks are becoming a bigger part of the banking scene in other countries.
The difficulty in writing regulations that try to control what these banks can do is, in the words of economists Oliver Hart of Harvard and Luigi Zingales of the University of Chicago, “doomed to fail because such regulations are extremely easy to bypass. It takes no time for a clever financier to design a contract that gets around most restrictions.” Finance is just information and information can be restructured in almost any way that someone wants it to be structured.
The evolution of the financial system is going to continue to be fought by those constrained to the old Keynesian fundamentalism. The current financial environment has been created by fifty years of government policy conforming to a dogma that considers an inflationary bias to the economy an necessary pre-requisite for sustaining high levels of economic growth and low levels of unemployment.
Well, this inflationary environment has fostered the undisciplined expansion of credit, the excessive leveraging of financial capital, and the creation of more and more financial innovation to underwrite both the expansion of the debt and the aggressive financial leveraging. It has also resulted in the relative growth of the financial industry.
Many of these same commentators have remarked about how the financial sector has grown relative to the rest of the economy. For example, Paul Krugman in “Don’t Cry for Wall Street”, has written: “In the years leading up to the 2008 crisis, the financial industry accounted for a third of total domestic profits — about twice its share two decades earlier.” He then makes the value judgment that “the fact is that we’ve been devoting far too large a share of our wealth, far too much of the nation’s talent, to the business of devising and peddling complex financial schemes — schemes that have a tendency to blow up the economy. Ending this state of affairs will hurt the financial industry. So?” (See http://www.nytimes.com/2010/04/23/opinion/23krugman.html?hp.)
Well, this is the financial industry that a government following the Keynesian economic philosophy has created. Two final comments: first, care needs to be taken in creating economic policies because the long run effect of the policies may not be what you want even though the short run effects are what you want; and second, once the size and structure of an industry has been created, it does not go away until the industry becomes technologically obsolete. The financial industry is thriving using information technology, a field that is just in its infancy. Finance and information technology have a long way to go.
Now there are about 8,000 banks in the United States and about one in eight of these banks is either on the problem bank list of the FDIC or in rather serious trouble. The FDIC is closing three to four banks a week and it is expected to continue on this pace for another twelve to eighteen months.
The biggest banks in the banking system are doing well, profit wise. The reported earnings this week of JPMorgan Chase, Goldman Sachs, Morgan Stanley, Bank of America, Citigroup, and so on just re-confirmed the recovery of these giant institutions. Of course it is not the banking side of the business that is producing these results, although their loan problems seem to be diminishing. It is the trading side of the business that is creating such significant gains subsidized by the Federal Reserve zero interest rate policy. This is the “quiet” bailout of these banks because it does not require Treasury funds to support the effort and it helps bank assets improve so that insolvency becomes less and less of a problem.
Furthermore, regional banks appear to be recovering. PNC and BB&T have been doing well, but those lagging behind, Fifth Third Bancorp, KeyCorp, SunTrust Banks, and Huntington Bancshares all seem to be showing improvements which respect to their problem loans. PNC and BB&T actually reported profits for the first quarter, $671 million for PNC and $194 million for BB&T. So, the improvements continue down the supply chain (http://online.wsj.com/article/SB20001424052748703876404575200240959419542.html#mod=todays_us_money_and_investing.)
We are still waiting for the small- to medium-sized banks to start perking up. But, this is where more of the problem or troubled banks lie and where most of the bank closures or acquisitions are going to be.
This fact points to one of the major changes taking place in the banking system. We are going through another period where the number of banks in the banking system is declining. I would not be surprised at all if the number of banks dropped to the 5,000 to 6,000 range over the next few years.
This movement will continue the consolidation of the banking industry in the United States. Right now, $2 out of every $3 in domestic banking assets resides in the largest 25 banks in the country. These are the huge banks mentioned above and the large regional banks mentioned above.
How high might this concentration go? I believe that regardless of what Congress does with respect to financial reform and trying to limit the size of banks that the total amount of domestic assets residing in the largest 25 banks in the country will go to about $4 out of every $5 in the relatively near future. This means that there will be at least 5,000 banks competing for that other $1!
Another change that is taking place in the United States banking system is the presence of more and more foreign banks. This seems to be a perfect time for foreign owned banks to pick up acquisitions in the United States and not only gain size but also gain presence in different regional markets. In this respect, note the article “Foreign Firms Scoop Up Failed U. S. Banks” in the Wall Street Journal, http://online.wsj.com/article/SB10001424052748704830404575200134085458128.html#mod=todays_us_money_and_investing. Canadian banks are especially taking advantage of the banking situation in the United States, but banks in Japan and other countries are seizing the opportunity as well.
In March, foreign-related institutions controlled over 11% of the assets in the United States banking system. This is up substantially from thirty years ago and is expected to climb further in the near future. My guess is that this number will be in the 15% to 20% range over the next five years or so. And, these assets will not be owned by small- or medium-sized financial organizations.
This is the problem now faced by President Obama and the Congress in terms of financial reform. I just don’t see these trends reversing themselves. And, as banks get bigger they will also be controlling more and more of the banking assets in the United States. And, as the banks get bigger they will continue to move into more and more areas of the financial market and they will continue to create more and more financial innovations.
And, if they are not done in the United States they will be done somewhere else in the world for commercial banking is, in fact, worldwide and not just the playing field of Americans. Big foreign banks are becoming a bigger part of the United States banking scene just as big United States banks are becoming a bigger part of the banking scene in other countries.
The difficulty in writing regulations that try to control what these banks can do is, in the words of economists Oliver Hart of Harvard and Luigi Zingales of the University of Chicago, “doomed to fail because such regulations are extremely easy to bypass. It takes no time for a clever financier to design a contract that gets around most restrictions.” Finance is just information and information can be restructured in almost any way that someone wants it to be structured.
The evolution of the financial system is going to continue to be fought by those constrained to the old Keynesian fundamentalism. The current financial environment has been created by fifty years of government policy conforming to a dogma that considers an inflationary bias to the economy an necessary pre-requisite for sustaining high levels of economic growth and low levels of unemployment.
Well, this inflationary environment has fostered the undisciplined expansion of credit, the excessive leveraging of financial capital, and the creation of more and more financial innovation to underwrite both the expansion of the debt and the aggressive financial leveraging. It has also resulted in the relative growth of the financial industry.
Many of these same commentators have remarked about how the financial sector has grown relative to the rest of the economy. For example, Paul Krugman in “Don’t Cry for Wall Street”, has written: “In the years leading up to the 2008 crisis, the financial industry accounted for a third of total domestic profits — about twice its share two decades earlier.” He then makes the value judgment that “the fact is that we’ve been devoting far too large a share of our wealth, far too much of the nation’s talent, to the business of devising and peddling complex financial schemes — schemes that have a tendency to blow up the economy. Ending this state of affairs will hurt the financial industry. So?” (See http://www.nytimes.com/2010/04/23/opinion/23krugman.html?hp.)
Well, this is the financial industry that a government following the Keynesian economic philosophy has created. Two final comments: first, care needs to be taken in creating economic policies because the long run effect of the policies may not be what you want even though the short run effects are what you want; and second, once the size and structure of an industry has been created, it does not go away until the industry becomes technologically obsolete. The financial industry is thriving using information technology, a field that is just in its infancy. Finance and information technology have a long way to go.
Sunday, January 10, 2010
Smaller Banks Continue to Struggle
Smaller banks continued to struggle, balance sheet-wise, in the fourth quarter of 2009. Data have just been released bringing us through the last banking week of the year, December 30, 2009.
These data come from the H.8 release of the Federal Reserve System and are seasonally adjusted. Although there are some inconsistencies in the data series over time, this is the best comprehensive view we have of the banking system and can give us some idea of what is happening to banks if examined on a regular basis.
Large domestically chartered banks are the largest 25 domestically chartered banks in the United States and possessed about $6.7 trillion in assets on December 30, 2009. Small banks are the banks not included in the largest 25 and possessed about $3.6 trillion in assets on the same date. This difference in size gives you some indication of the relative importance, based on asset-size, of the two categories of banks. And, there are over 8 thousand FDIC insured banks in the United States.
Large banks, as we have heard, are going to report record or near record-level results for the calendar year 2009 and bonuses are expected to approach the levels reached in the peak year of 2007.
There is some indication that the interest-earning assets of large banks are starting to grow again. Over the past 13-week period securities held by these banks increased by about $87 billion and Loans and Leases rose by around $106 billion. Surprisingly, most of the increases in loans came in residential home loans and commercial real estates mortgages, $83 billion and $20 billion, respectively. Commercial and Industrial loans continued to decline over this period, dropping by about $27 billion.
We see similar behavior over the past 4-week period as the securities portfolio rose by about $21 billion and Residential and Commercial loans increased by a combined $12 billion. Business loans dropped this time period by about $7 billion.
Very little money, if any, is going into the business sector.
The improvement in the position of the larger banks has allowed them to reduce their holdings of cash assets by $172 billion over the past 13 weeks, by $26 billion in the last 4 weeks.
On the other hand, small banks really seem to be struggling. Profit-wise, the news is not good for this sector.
Their balance sheet performance is not all that good, either. Over the past 4-week period, the smaller banks have lost $36 billion in assets and have lost a total of $108 billion in assets over the past 13-weelk period.
All of this reduction has come in earning assets other than securities. Over the whole 13 week period the smaller banks have kept their securities portfolio roughly constant. Hence, the reduction in assets has been centered on their loan portfolios.
The biggest drop: commercial real estate mortgages. The smaller banks have seen their holdings of commercial mortgages drop by around $50 billion over the past 13 weeks; the drop has been slightly less than $20 billion for the last 4 weeks.
We have heard over and over again about the problems in commercial real estate and what a serious problem this is for the small- and medium-sized banks in this country. We have seen a decline of more than 10% in portfolio assets in this category over the past 12 months. The forecasts are for an additional decline by at least this amount over the next 12 to 18 months.
This is not a good picture.
The residential mortgage portfolio also continues to decline. We see another $8 billion reduction in this number over the last 13 weeks, the majority of the fall coming in the last four weeks.
The thing to watch here is that as unemployment stays high, as people continue to leave the workforce, and as businesses go more and more to hiring temporary help, the residential mortgage sector is expected to remain on the weak side. Almost everyone seems to predicting more foreclosures and more bankruptcies and the brunt of these difficulties is expected to fall on the small- to medium-sized banks.
Remember that at the end of the third quarter the FDIC had 552 banks, mostly smaller ones, on its list of problem banks. This number is expected to grow this year, even accounting for the number of banks that will actually fail. People are saying that about one-third of this total will fail which will be that 3 to 3.5 banks will fail every week for the next 12 to 18 months.
Are there any good signs or is everything bad?
Well, the big banks seem to be in great shape and are off to the races!
The small- and medium-sized banks seem to be in for some very rough times.
The gap widens further and further between Wall Street and Main Street!
And, as we have said before, thrift institutions seem to be in the same boat as the small- and medium-sized banks.
Today, it seems as if, if you want to be small, you should be a credit union!
Just one comment on regulatory reform: it seems to me that a part of regulatory reform needs to be a total restructuring of the financial services industry. The mumbo-jumbo we have right now is just a residual from the past and bears no rational relationship to anything that makes sense.
Thrift institutions were, at one time, the only financial institutions dedicated to the housing industry. At one time they were useful. They seem totally superfluous at the present time.
Others, particularly in Great Britain, seem intent upon a restructuring that would separate the deposit banking function of financial institutions from the deal making/trading function of financial institutions.
Perhaps before we spend a lot of time developing a regulatory structure of new bandages and splints for the old system, people should put in some serious time thinking about what financial institutions are needed and how functions should be allocated across institutions.
These data come from the H.8 release of the Federal Reserve System and are seasonally adjusted. Although there are some inconsistencies in the data series over time, this is the best comprehensive view we have of the banking system and can give us some idea of what is happening to banks if examined on a regular basis.
Large domestically chartered banks are the largest 25 domestically chartered banks in the United States and possessed about $6.7 trillion in assets on December 30, 2009. Small banks are the banks not included in the largest 25 and possessed about $3.6 trillion in assets on the same date. This difference in size gives you some indication of the relative importance, based on asset-size, of the two categories of banks. And, there are over 8 thousand FDIC insured banks in the United States.
Large banks, as we have heard, are going to report record or near record-level results for the calendar year 2009 and bonuses are expected to approach the levels reached in the peak year of 2007.
There is some indication that the interest-earning assets of large banks are starting to grow again. Over the past 13-week period securities held by these banks increased by about $87 billion and Loans and Leases rose by around $106 billion. Surprisingly, most of the increases in loans came in residential home loans and commercial real estates mortgages, $83 billion and $20 billion, respectively. Commercial and Industrial loans continued to decline over this period, dropping by about $27 billion.
We see similar behavior over the past 4-week period as the securities portfolio rose by about $21 billion and Residential and Commercial loans increased by a combined $12 billion. Business loans dropped this time period by about $7 billion.
Very little money, if any, is going into the business sector.
The improvement in the position of the larger banks has allowed them to reduce their holdings of cash assets by $172 billion over the past 13 weeks, by $26 billion in the last 4 weeks.
On the other hand, small banks really seem to be struggling. Profit-wise, the news is not good for this sector.
Their balance sheet performance is not all that good, either. Over the past 4-week period, the smaller banks have lost $36 billion in assets and have lost a total of $108 billion in assets over the past 13-weelk period.
All of this reduction has come in earning assets other than securities. Over the whole 13 week period the smaller banks have kept their securities portfolio roughly constant. Hence, the reduction in assets has been centered on their loan portfolios.
The biggest drop: commercial real estate mortgages. The smaller banks have seen their holdings of commercial mortgages drop by around $50 billion over the past 13 weeks; the drop has been slightly less than $20 billion for the last 4 weeks.
We have heard over and over again about the problems in commercial real estate and what a serious problem this is for the small- and medium-sized banks in this country. We have seen a decline of more than 10% in portfolio assets in this category over the past 12 months. The forecasts are for an additional decline by at least this amount over the next 12 to 18 months.
This is not a good picture.
The residential mortgage portfolio also continues to decline. We see another $8 billion reduction in this number over the last 13 weeks, the majority of the fall coming in the last four weeks.
The thing to watch here is that as unemployment stays high, as people continue to leave the workforce, and as businesses go more and more to hiring temporary help, the residential mortgage sector is expected to remain on the weak side. Almost everyone seems to predicting more foreclosures and more bankruptcies and the brunt of these difficulties is expected to fall on the small- to medium-sized banks.
Remember that at the end of the third quarter the FDIC had 552 banks, mostly smaller ones, on its list of problem banks. This number is expected to grow this year, even accounting for the number of banks that will actually fail. People are saying that about one-third of this total will fail which will be that 3 to 3.5 banks will fail every week for the next 12 to 18 months.
Are there any good signs or is everything bad?
Well, the big banks seem to be in great shape and are off to the races!
The small- and medium-sized banks seem to be in for some very rough times.
The gap widens further and further between Wall Street and Main Street!
And, as we have said before, thrift institutions seem to be in the same boat as the small- and medium-sized banks.
Today, it seems as if, if you want to be small, you should be a credit union!
Just one comment on regulatory reform: it seems to me that a part of regulatory reform needs to be a total restructuring of the financial services industry. The mumbo-jumbo we have right now is just a residual from the past and bears no rational relationship to anything that makes sense.
Thrift institutions were, at one time, the only financial institutions dedicated to the housing industry. At one time they were useful. They seem totally superfluous at the present time.
Others, particularly in Great Britain, seem intent upon a restructuring that would separate the deposit banking function of financial institutions from the deal making/trading function of financial institutions.
Perhaps before we spend a lot of time developing a regulatory structure of new bandages and splints for the old system, people should put in some serious time thinking about what financial institutions are needed and how functions should be allocated across institutions.
Thursday, October 1, 2009
The Problems of the Savings Industry
In an earlier post I reported that the weakness being experienced in the year-over-year rate of growth of the M2 measure of the money stock could be attributed to shifts in deposits from thrift institutions into commercial banks. (September 25: http://seekingalpha.com/article/163456-thrift-struggles-dragging-down-m2-growth.)
On Tuesday, September 29, I wrote about commercial banks and how bank holding companies had raised a substantial amount of funds in the capital markets from the second quarter of 2008 to the second quarter of 2009 but most of the funds raised by these institutions went into non-bank subsidiaries. Chartered U. S. banks saw some increase in assets over this time period but these funds went into cash assets, government or agency securities, and mortgages, mostly of the commercial type.
We also have data from the flow-of-funds accounts that give us some insight into what is happening at savings institutions and credit unions. The real success story seems to be that connected with credit unions. The credit union industry ended the second quarter of 2008 with almost $900 billion in financial assets. All other savings institutions had assets of about $1,400 billion and the Office of Thrift Supervision (OTS) reported that thrift institutions had assets that amounted to only $1,100 at the end of the second quarter.
Who would have ever thought that the credit union industry would ever be about the same size as the thrift industry?
Credit Unions grew by $73 billion, year-over-year, and the credit that they extended seemed to expand during this time period at a fairly steady pace.
The bad news: savings institutions, which include savings and loan associations, mutual savings banks, and federal savings banks, performed abysmally. For one, industry assets, according to the OTS fell by 27% over the last year, reflecting the failure and sale (to commercial banks) of several large thrift institutions. Total loans at these institutions fell by 35%.
The total decline in financial assets for the industry was $420 billion: the mortgage portfolio of the industry declined by almost a third or $360 billion. Consumer credit also declined by about $14 billion.
According to the OTS, the industry as a whole earned a profit of $4 million—yes, that’s million—in the second quarter. This is the first quarterly profit since the third quarter of 2007.
The industry added almost $5.0 billion—yes, that’s billion—to loan loss provisions in the second quarter. This loan loss provision was exceeded in history by only five other quarters. However, these five other quarters were the five quarters just preceding the second quarter of 2009.
The OTS reports, however, that “96.2% of all thrifts exceed ‘well-capitalized’ regulatory standards.” These institutions, we are told comprise 95.9% of industry assets but most of them are relatively small. So, institutions with approximately $45 billion in assets are in not “well-capitalized” thrifts, by industry standards. The number of problem thrifts reached 40 at the end of the second quarter.
Yet the industry has about $40 in what are called troubled assets, about 3.5% of Total Assets. Troubled assets are noncurrent loans and reposed assets.
It seems as if the thrift industry is dying and needs to be consolidated and merged into the commercial banking industry. (And this from a person, myself, who successfully turned around two thrift institutions.) I don’t believe that there should be a merger of thrift institutions with the credit union segment of the industry. Credit unions seem to be doing something right. (I have worked, in recent years, with groups to form three credit unions and I believe that credit unions can fill a very important gap in consumer finance, credit and banking services.)
The thrift industry played a very important role in the history of the United States (and elsewhere in the world). In the current era of securitization and financial innovation, I believe that savings institutions have exceeded their useful lifetime. The savings and loan crisis saw the collapse of the industry and the 2000s just verified that the industry really needs to continue to shrink and become incorporated into other segments of the market.
On Tuesday, September 29, I wrote about commercial banks and how bank holding companies had raised a substantial amount of funds in the capital markets from the second quarter of 2008 to the second quarter of 2009 but most of the funds raised by these institutions went into non-bank subsidiaries. Chartered U. S. banks saw some increase in assets over this time period but these funds went into cash assets, government or agency securities, and mortgages, mostly of the commercial type.
We also have data from the flow-of-funds accounts that give us some insight into what is happening at savings institutions and credit unions. The real success story seems to be that connected with credit unions. The credit union industry ended the second quarter of 2008 with almost $900 billion in financial assets. All other savings institutions had assets of about $1,400 billion and the Office of Thrift Supervision (OTS) reported that thrift institutions had assets that amounted to only $1,100 at the end of the second quarter.
Who would have ever thought that the credit union industry would ever be about the same size as the thrift industry?
Credit Unions grew by $73 billion, year-over-year, and the credit that they extended seemed to expand during this time period at a fairly steady pace.
The bad news: savings institutions, which include savings and loan associations, mutual savings banks, and federal savings banks, performed abysmally. For one, industry assets, according to the OTS fell by 27% over the last year, reflecting the failure and sale (to commercial banks) of several large thrift institutions. Total loans at these institutions fell by 35%.
The total decline in financial assets for the industry was $420 billion: the mortgage portfolio of the industry declined by almost a third or $360 billion. Consumer credit also declined by about $14 billion.
According to the OTS, the industry as a whole earned a profit of $4 million—yes, that’s million—in the second quarter. This is the first quarterly profit since the third quarter of 2007.
The industry added almost $5.0 billion—yes, that’s billion—to loan loss provisions in the second quarter. This loan loss provision was exceeded in history by only five other quarters. However, these five other quarters were the five quarters just preceding the second quarter of 2009.
The OTS reports, however, that “96.2% of all thrifts exceed ‘well-capitalized’ regulatory standards.” These institutions, we are told comprise 95.9% of industry assets but most of them are relatively small. So, institutions with approximately $45 billion in assets are in not “well-capitalized” thrifts, by industry standards. The number of problem thrifts reached 40 at the end of the second quarter.
Yet the industry has about $40 in what are called troubled assets, about 3.5% of Total Assets. Troubled assets are noncurrent loans and reposed assets.
It seems as if the thrift industry is dying and needs to be consolidated and merged into the commercial banking industry. (And this from a person, myself, who successfully turned around two thrift institutions.) I don’t believe that there should be a merger of thrift institutions with the credit union segment of the industry. Credit unions seem to be doing something right. (I have worked, in recent years, with groups to form three credit unions and I believe that credit unions can fill a very important gap in consumer finance, credit and banking services.)
The thrift industry played a very important role in the history of the United States (and elsewhere in the world). In the current era of securitization and financial innovation, I believe that savings institutions have exceeded their useful lifetime. The savings and loan crisis saw the collapse of the industry and the 2000s just verified that the industry really needs to continue to shrink and become incorporated into other segments of the market.
Thursday, June 25, 2009
Treasury's TARP Debt Already Monetized?
Where does all the TARP money show up? TARP, of course, stands for the Troubled Asset Relief Program that became law on October 3, 2008, a program aimed at providing support for the banking system. The program was initially intended to provide liquidity-help for the troubled assets that were on the balance sheets of banks but it soon morphed into a program to support troubled banks in their capital needs as funds were made available to purchase senior preferred stock and warrants from commercial banks and other troubled financial institutions.
The first $350 billion of funds was authorized to be released on October 3, 2008 and Congress approved the release of the next $350 billion on January 15, 2009. Part of the concern with the program was that the government deficit would have to increase by $700 billion in order to create the funds. Concerns arose about how the Treasury Department would finance these payments?
One quick answer was “let the Federal Reserve monetize the debt?”
What if the Federal Reserve has already monetized the debt related to TARP? If this is the case, then two questions that have been puzzling me have answers to them. The first question relates to the increase in excess reserves in the banking system. The second question relates to the concern about how the Federal Reserve will reverse out all of the reserves that it pumped into the banking system last fall. Let’s look at both in turn.
Federal Reserve Bank Credit has increased by $1.2 trillion since just before the financial meltdown in September 2008. What has increased the most in the banking system? Excess reserves in the commercial banking system have risen by about $800 billion. Excess reserves in the WHOLE banking system had run about $2 billion before September 2008. Something unprecedented obviously took place!
In terms of policy making the creation of TARP and the response of the Federal Reserve are closely tied together. (See my post of November 16, 2008, “The Bailout Plan: Did Bernanke Panic?: http://seekingalpha.com/article/106186-the-bailout-plan-did-bernanke-panic.) As mentioned above, the first round of TARP was released in October. But, the Federal Reserve could not wait. It began pumping reserves into the banking system in the latter part of September increasing Reserve Bank Credit outstanding from about $890 billion on September 10, 2008 to $1.5 trillion on October 8, $1.9 trillion on October 29, and $2.2 trillion on November 19.
In all this action, what happened to reserve balances at the Federal Reserve? They went from around $8 billion on September 10, to $175 billion, to $420 billion, to $624 billion, respectively, on the same dates as above. Excess reserves in the banking system averaged $2 billion in August, $60 billion in September, $268 billion in October, $559 billion in November, and $767 billion in December.
Excess reserves in the banking system averaged $844 billion in May and are averaging around $800 in June. Clearly a lot of money!
The question is “Why are the banks sitting on such large amounts of basically idle cash?”
My response is that they are sitting on this cash because it is connected with the receipt of TARP monies and the banks are hoping, as some of the larger and stronger institutions have done, to repay the funds as soon as possible.
Let’s look a little closer at the data. I am using information from the H.8 release put out by the Federal Reserve System on assets and liabilities of all commercial banks in the United States. Year-over-year, through May 2009, total assets in the banking system increased by 9.7% or about $1.1 trillion. Cash assets in the banking system increased a whopping $731 billion or at a year-over-year rate of 236%. This is comparable to the year-over-year increase in excess reserves observed on the H.3 release of the Federal Reserve providing data on bank reserves.
Given my post of last June 15, 2009, “What Aren’t Banks Telling Us?”, (http://seekingalpha.com/article/143276-what-aren-t-banks-telling-us) I was interested in looking a little deeper into this information to see how these excess reserves were distributed within the banking system. Roughly the division is this. The increase in cash assets at large commercial banks was $371billion, at small banks the increase was $143 billion, and at Foreign-related Institutions in the United States, $217 billion. The increase at the larger institutions, the large banks and the foreign-related institutions, was $588 billion and this represented the immediate problem to the policy makers. The problems of the smaller banks could be dealt with later.
The reason I am interested in looking into this distribution is the claim made in the above-mentioned post that commercial banks had not been fully open with the public on the problems they were still facing. In that post I mentioned three areas of concern: the bad assets now on the books of the banks; the anticipated increase in the bad assets in the upcoming months; and finally, the needs of the banks to be able to fund themselves in the future in the face of liabilities that were maturing and would not be rolled over. The build up in cash assets, it was argued, was a precaution the banks were taking to handle the uncertainty they faced as either asset values fell or a run off of liabilities forced the banks to dispose of assets.
Here is where the TARP money comes into play. If TARP money went into preferred stock and warrants, then these monies could be used to provide capital to the banks as the banks needed to write off bad loans and securities. The stock could even be converted into capital if the funds were needed to keep the banks solvent. Otherwise the banks could use the TARP funds to pay off maturing debt that could not be rolled over in the financial markets. (See Gretchen Morgenson, “Debts Coming Due At The Wrong Time,”
http://www.nytimes.com/2009/06/14/business/14gret.html?_r=1&scp=1&sq=gretchen%20morgenson/June%2014,%202009&st=cse.) Thus, monetizing the TARP debt makes a lot of sense in that it helps to protect the banking system from either bad assets that have to be written off or from financing problems resulting from the inability of the banks to roll over maturing liabilities.
What does this have to do with the Federal Reserve being able to unwind all the Reserve Bank Credit that it has pumped into the system? Well, when the banking system gets its act in order and charges off the loans and securities that it needs to and when its refinancing needs are satisfied, banks can then repay the TARP money to the Treasury as have the large financial institutions that have already repaid the TARP funds that they received. And, as the TARP monies are repaid, Reserve Bank Credit will decline so as to reduce the concern over the Fed monetizing the federal deficit.
Nice trick! The policy makers have provided a net under the banking system if the situation gets too bad in order to protect it against things falling apart and parallelizing the financial system. And, they have built into the system the means of reducing reserves as the financial system strengthens so as to avoid concerns over possible future inflation.
One final question: have the actions of the Federal Reserve had any impact on bank lending? The answer is “Not Really!” Year-over-year, loans and leases at all commercial banks increased by a tepid $182 billion or at a 2.6% annual rate. And, where were these increases located? Generally in home equity loans, consumer loans, and other residential loans (primarily mortgages) satisfying consumers needs for ready cash through consumer credit or the refinancing of homes. And, these loans were pretty evenly spread throughout the banking system.
Bottom line, however, is that the banks aren’t lending! Especially in the areas of commercial and industrial loans and commercial mortgages. Does that tell you something?
The first $350 billion of funds was authorized to be released on October 3, 2008 and Congress approved the release of the next $350 billion on January 15, 2009. Part of the concern with the program was that the government deficit would have to increase by $700 billion in order to create the funds. Concerns arose about how the Treasury Department would finance these payments?
One quick answer was “let the Federal Reserve monetize the debt?”
What if the Federal Reserve has already monetized the debt related to TARP? If this is the case, then two questions that have been puzzling me have answers to them. The first question relates to the increase in excess reserves in the banking system. The second question relates to the concern about how the Federal Reserve will reverse out all of the reserves that it pumped into the banking system last fall. Let’s look at both in turn.
Federal Reserve Bank Credit has increased by $1.2 trillion since just before the financial meltdown in September 2008. What has increased the most in the banking system? Excess reserves in the commercial banking system have risen by about $800 billion. Excess reserves in the WHOLE banking system had run about $2 billion before September 2008. Something unprecedented obviously took place!
In terms of policy making the creation of TARP and the response of the Federal Reserve are closely tied together. (See my post of November 16, 2008, “The Bailout Plan: Did Bernanke Panic?: http://seekingalpha.com/article/106186-the-bailout-plan-did-bernanke-panic.) As mentioned above, the first round of TARP was released in October. But, the Federal Reserve could not wait. It began pumping reserves into the banking system in the latter part of September increasing Reserve Bank Credit outstanding from about $890 billion on September 10, 2008 to $1.5 trillion on October 8, $1.9 trillion on October 29, and $2.2 trillion on November 19.
In all this action, what happened to reserve balances at the Federal Reserve? They went from around $8 billion on September 10, to $175 billion, to $420 billion, to $624 billion, respectively, on the same dates as above. Excess reserves in the banking system averaged $2 billion in August, $60 billion in September, $268 billion in October, $559 billion in November, and $767 billion in December.
Excess reserves in the banking system averaged $844 billion in May and are averaging around $800 in June. Clearly a lot of money!
The question is “Why are the banks sitting on such large amounts of basically idle cash?”
My response is that they are sitting on this cash because it is connected with the receipt of TARP monies and the banks are hoping, as some of the larger and stronger institutions have done, to repay the funds as soon as possible.
Let’s look a little closer at the data. I am using information from the H.8 release put out by the Federal Reserve System on assets and liabilities of all commercial banks in the United States. Year-over-year, through May 2009, total assets in the banking system increased by 9.7% or about $1.1 trillion. Cash assets in the banking system increased a whopping $731 billion or at a year-over-year rate of 236%. This is comparable to the year-over-year increase in excess reserves observed on the H.3 release of the Federal Reserve providing data on bank reserves.
Given my post of last June 15, 2009, “What Aren’t Banks Telling Us?”, (http://seekingalpha.com/article/143276-what-aren-t-banks-telling-us) I was interested in looking a little deeper into this information to see how these excess reserves were distributed within the banking system. Roughly the division is this. The increase in cash assets at large commercial banks was $371billion, at small banks the increase was $143 billion, and at Foreign-related Institutions in the United States, $217 billion. The increase at the larger institutions, the large banks and the foreign-related institutions, was $588 billion and this represented the immediate problem to the policy makers. The problems of the smaller banks could be dealt with later.
The reason I am interested in looking into this distribution is the claim made in the above-mentioned post that commercial banks had not been fully open with the public on the problems they were still facing. In that post I mentioned three areas of concern: the bad assets now on the books of the banks; the anticipated increase in the bad assets in the upcoming months; and finally, the needs of the banks to be able to fund themselves in the future in the face of liabilities that were maturing and would not be rolled over. The build up in cash assets, it was argued, was a precaution the banks were taking to handle the uncertainty they faced as either asset values fell or a run off of liabilities forced the banks to dispose of assets.
Here is where the TARP money comes into play. If TARP money went into preferred stock and warrants, then these monies could be used to provide capital to the banks as the banks needed to write off bad loans and securities. The stock could even be converted into capital if the funds were needed to keep the banks solvent. Otherwise the banks could use the TARP funds to pay off maturing debt that could not be rolled over in the financial markets. (See Gretchen Morgenson, “Debts Coming Due At The Wrong Time,”
http://www.nytimes.com/2009/06/14/business/14gret.html?_r=1&scp=1&sq=gretchen%20morgenson/June%2014,%202009&st=cse.) Thus, monetizing the TARP debt makes a lot of sense in that it helps to protect the banking system from either bad assets that have to be written off or from financing problems resulting from the inability of the banks to roll over maturing liabilities.
What does this have to do with the Federal Reserve being able to unwind all the Reserve Bank Credit that it has pumped into the system? Well, when the banking system gets its act in order and charges off the loans and securities that it needs to and when its refinancing needs are satisfied, banks can then repay the TARP money to the Treasury as have the large financial institutions that have already repaid the TARP funds that they received. And, as the TARP monies are repaid, Reserve Bank Credit will decline so as to reduce the concern over the Fed monetizing the federal deficit.
Nice trick! The policy makers have provided a net under the banking system if the situation gets too bad in order to protect it against things falling apart and parallelizing the financial system. And, they have built into the system the means of reducing reserves as the financial system strengthens so as to avoid concerns over possible future inflation.
One final question: have the actions of the Federal Reserve had any impact on bank lending? The answer is “Not Really!” Year-over-year, loans and leases at all commercial banks increased by a tepid $182 billion or at a 2.6% annual rate. And, where were these increases located? Generally in home equity loans, consumer loans, and other residential loans (primarily mortgages) satisfying consumers needs for ready cash through consumer credit or the refinancing of homes. And, these loans were pretty evenly spread throughout the banking system.
Bottom line, however, is that the banks aren’t lending! Especially in the areas of commercial and industrial loans and commercial mortgages. Does that tell you something?
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