It's Official: You Can't Blame Banks For Not Lending Anymore

If you still believe what’s holding back the U.S. recovery is an unwillingness of banks to lend, this chart from Citi’s Steven Weiting should finally prove to you that you’re wrong.

While banks keep making it easier for borrowers to take on more debt, there simply isn’t a desire to do so.

From Citi’s Steven Weiting:

However, next month’s 3Q survey of senior loan officers should be monitored for potential signs of slippage. As the figures suggested, past improvements in lending sentiment would suggest a stronger outlook. Yet the latest data on loans and leases (“real economy loans”) have not kept up with the sequential improvement in lending sentiment or reported loan demand (see Figure 9).


Photo: Citi

There’s also the possibility that, while there is less of a demand for new debt, banks are also on the brink of tightening lending standards again, worried about new capital requirements from the Fed and Basel III. That could slow down the U.S. growth story again, resulting in damages to the recovery.

From Citi’s Steven Weiting:

The U.S. somehow tolerates more than 30,000 fatalities from motor vehicle accidents each year. Speed seems to affect both the incidence of accidents, and most certainly the severity of injury. The most recent data from the National Highway and Traffic Safety Administration shows incidences of fatalities above 55 miles per hour were 3.7x more prevalent than accidents at 40 miles per hour. But the nation seems to value the opportunities afforded by arriving from place to place more swiftly, even with other externalties. If the highway speed were 20 miles or even kilometers per hour, we are quite sure highway fatalities would drop, but so would the nation’s output, given lost productive time. Our point is, a tradeoff that must be acknowledged.

So Weiting believes that, if we increase restrictions on banks, we should also expect a decrease in growth as a result. But if no one wants loans in the first place, the new restrictions might not matter at all.

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