Friday, October 9, 2009

Banks' cash up, lending stagnant

To be fair, TARP money was intended to save banks, not necessarily to boost speculative lending.

Marketwatch has a sobering report on bank lending - loans to businesses declined 28% on an annualized basis.

The decline in bank lending mostly affects smaller businesses. Larger corporations have alternative sources of funding, including retained earnings, corporate bonds, securitized loans and new equity. Those other sources of capital have increased in recent months, but not enough to offset the decline in bank lending.

In the first and second quarters, the U.S. private sector consumed more capital than it raised for the first time in more than 60 years. Negative net investment is "the hallmark of depression and difficult to reverse," said economist Leigh Skene of Lombard Street Research.

Two major reasons lending has contracted, even while banks sit on record cash levels, is that they're

A - Using that cash to cushion coming reductions in the value of their loans.
B - Probably cannot find too many attractive investment (loan recipients) opportunities.

My (3rd grade level of artistic talent) charting of the cash, using Fed Data:



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