Howls of outrage have prompted (some) banks to say they’ll actually pump some of that taxpayer money back into the economy, instead of using it for bonuses, acquisitions, and insurance. Unfortunately, so far, judging from a WSJ story on the topic, it’s only the little banks that haven’t gotten the money yet (and still need to give Neel Kashkari happy) that are promising this.
More importantly, the WSJ gets at the real problem here. In addition to running on fumes and fearing for their own futures, the banks aren’t lending because:
- Some potential customers are in terrible shape (and banks just learned the hard way that lending money to customers who can’t pay it back isn’t a stupendous idea)
- Other potential customers are cutting back and don’t want the money.
- Would-be depositors are hiding their money in Treasuries.
What’s really going on here? Our economy is collectively coming to the consensus that a 350% debt-to-GDP ratio (vs. 155% average) is too high. Shoveling money at the banks won’t fix that. The only thing that will fix that is vaporizing $10-$20 trillion of debt.
WSJ: Some bankers say they are making fewer loans because fewer customers want them. Many businesses, bracing for a prolonged economic slump, have shelved expansion plans that would have required them to line up a loan.
“A lot of that is not related to banks not willing to lend. It’s demand-driven,” said William J. Reuter, CEO of Susquehanna Bancshares Inc., a Lititz, Pa., lender with more than 230 branches and about $14 billion in assets. “Customers are hunkering down more.”
Economic jitters also are prompting some lenders themselves to pull back. Danvers Bancorp, a small savings-and-loan in suburban Boston, has cut the maximum amount it will loan to a single customer to $15 million from $20 million. Looming layoffs at Fidelity Investments and a quarterly loss reported by local manufacturer Teradyne Inc. are particularly worrisome signs for Danvers, which had pumped up its lending by 18% this year.
“We are still seeing great loan demand, but we are cutting back our efforts,” says Kevin Bottomley, CEO of the 18-branch bank. He says Danvers isn’t applying for TARP money because “we have excess capital by any measure.”
Regardless of their capital levels, banks rely on deposits to finance their lending businesses. In recent months, stiff competition for deposits has made it harder and more expensive for banks to maintain a stable funding source.
At Zions, the dearth of deposits “is a constraint” on the company’s plans to accelerate lending, said Mr. Arnold, the finance chief. “We can’t raise the funding fast enough.”