Deutsche Bank’s Chief U.S. economist Joe LaVorgna has come out with some incredibly bullish statements about the domestic economy recently.
But we think his note out today could the best sign yet that the U.S. economy is actually healthy despite the fear of shocks from Europe and China. From the note:
Contrary to popular belief, consumers have access to credit. According to the Fed’s Senior Loan Officer Survey, commercial banks’ willingness to lend to consumers stood at a relatively high +18.8% in October. In fact, the year to date average has been +23.7%, the best showing since 1994 (+26.2%). This should not come as a surprise to market participants given the extraordinary health of US commercial bank balance sheets—the industry has gone through a period of unprecedented deleveraging over the past several years. In point of fact, the leverage ratio of US commercial banks is close to an all-time low. While this does not make the US banking system immune to a “Lehman-like” European event, it does suggest US banks are in solid financial shape. This should allow them to weather various negative exogenous shocks reasonably well.
This graph of banks’ asset-to-cash ratios shows just how healthy this position is. With big cash holdings, banks’s positions aren’t subject to big threats in the case of big shocks, and stand to up lending significantly with rising market confidence.
LaVorgna adds, “The bottom line is US bank balance sheets are in excellent financial shape.”
Photo: Deutsche Bank
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