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03 March 2009

No Banking Crisis Exists

Overall lending at U.S. commercial banks is up 5.7% in January from last year. It is at an all-time high of $9.85 trillion! This is just a bit below the average annualized monthly lending growth increase rate of 7.3% since 1990. This bit of a decrease is mostly due to reduced home mortgage lending, which is hardly a surprise given that people are not refinancing and that more people are out of work.

On the other hand, commercial and industrial loans were up 8.4% in January. Consumer loans were up 10.1%. This is a fairly robust lending market, not the crisis we are being told it is.

There are some financial institutions which have participated heavily in the bond market, hedge funds, and commercial paper markets who are in serious trouble, but the traditional banks generally are not. In fact, 90% of the traditional banks are well-capitalized and in pretty good shape.

We have to ask why the politicians and the media have tried so hard to imply that our banks are about to fail as many did in the Great Depression. One has to wonder if the politicians don't think that manufacturing a Great Depression would be good for them, however bad it might be for the rest of us.


cedrac said...

I was wondering where you got the data for this piece? I just wanted to know before I told anyone about it. I highly doubt they would take me on my word on this one.

Thanks again for the great information.

Kirk barbera

Charles R. Anderson, Ph.D. said...

Hi Kirk,

The data came from an article in Investor's Business Daily at posted on 24 Feb 09 entitled " href="">Don't Nationalize Our Banks." At least a part of their data came from the Federal Reserve.

I found a graph today at the website of the Federal Reserve Bank of St. Louis of Commercial and Industrial Loans of Weekly Reporting Large Commercial Banks (CIBOARD) in the Economic Research pages of the website. The plot of percent change from a year ago shows that such lending is still higher than 1 year ago, but the amount higher is plunging. It has already fallen considerably since the data of about 2 weeks ago which would have been used for the IBD article. The % change is now down to about 2.5% more lending than 1 year ago, so it may be that the Obama people have managed to feed so much fear into the economy that this number may soon go negative.

But, merely having a negative % change lending relative to a year ago is not necessarily a major crisis. That number was negative from early 2001 until about the start of 2005 and we had no talk of nationalizing banks then. I suppose we were just warding off inflation then.