I found this quote from Adrian Van Eck to be rather intriguing:

“Did the Fed get the result it desired from shoving rates down like this? You tell me what you think. The two biggest banks actually loaned out less money in this month, according to reports, than they had in the month prior to their being handed $45 billion apiece of money from the U.S. Treasury. Meanwhile, small banks which had refused to accept even one penny of Treasury money had stepped up their lending aggressively.

Most small banks are run the way banking used to be done and is supposed to be done. They take money in from savers-depositors. They lend it out to their own customers whom the managers and bank officers come to know well. They finance local business needs and local mortgages, often keeping the mortgages in its own portfolio. It was mostly loans from local and regional lenders that made it possible for home sales to actually turn up in the most recent month’s data.

My question is this: Does the Fed feel very low rates have done their job? Have they begun to edge rates back up even as markets have been distracted by the stimulus debate?

And tomorrow we may likely bail out all the wrong banks.

More on Adrian Van Eck can be found here.

Category: Bailouts, BP Cafe, Corporate Management, Credit

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

4 Responses to “Large vs Small Bank Lending”

  1. Mike in Nola says:

    Houston business columnist wrote about same thing htis morning. Don’t know if it was an independent thought, but had local quotes:


    As to the Fed, when you’re an ideologue it doesn’t matter what result you’ve gottern. What you did had to be right.

  2. drewburn says:

    Feb. 8 (Bloomberg) — John Stumpf, chief executive officer of Wells Fargo & Co., defended corporate events that recognize top achievers after the bank canceled at least two because of what he said was “misleading” news coverage.

    In a full-page ad in today’s New York Times, Stumpf said the events serve to honor top bankers, financial advisers, tellers and mortgage salespeople at the second-biggest U.S. home lender. The bank, which received $25 billion in government bailout aid last year, is compelled to cancel the meetings amid “misperceptions” created by media reports, he said.

    Why the F did Wells pay for a full-page ad?? Get a clue. Control you costs. MG. These guys obviously our out in space. Fire them all.

  3. M.G. in Progress says:

    Indeed we are bailing out the wrong banks…In fact we should strengthen the good ones and set up new good banks.Since Gresham’s law also applies “Bad money drives out good”, keeping in existence bad banks affect very much good ones as markets and pricing are being distorted by lemon banks and products still around. Think big but go local…

  4. AllStreets says:

    The “big” banks are all insolvent due to huge protions of their “assets” being underwater under mark-to-market rules, especially their home equity loans, but also some first liens, and certainly all mortgage backed securities, not to mention their longer term stock holdings. They haven’t recognized all the mortgage-related losses on their balance sheets, otherwise the FDIC would own them all. They’re probably sitting on the TARP cash and rather than put the funds to work in risky credit cards, more mortgages, or corporate loans, which are all very risky, they’re using it to play stocks, bonds, currencies and futures and options on them where they can get equal or better returns with much better liquidity. The smaller banks don’t have such huge mortgage losses, and don’t play the securities markets as much, so they are using customer deposits to do what they normally do, write Agency, FHA, and VA mortgages (which they can hold or sell easily), car loans and small businesses financing. The other issue is where can the big banks find customers who qualify for enough loans to be a significant part of their liquid capital.

    The Fed is using low interest rates to provide bank liquidity to pump up the stock and bond markets, just like it did in 2001-2004. It could work to pump the markets, but won’t do much for housing, corporate balnace sheets, or commercial properties in absence of an entirely new program to bail out homeowners. The secondary market spreads between Fed funds and yields on some commercial paper, corporate bonds and stocks are monumental, so why not skim some of that spread instead of lend to risky borrowers (granted the TARP money carries 5% interest, so the spreads on that aren’t as attractive as spreads over the Fed funds rate).

    Regarding the nearly universal obsession by policy makers and lawmakers about bailing out only the lenders, but not the borrowers, it’s obviously an ineffective approach as well as unfair to taxpayers who bear the risk. The fundamental problem in the whole financial and economic crisis is that the drop in home values has left about 25% of homeowners with zero or negative equity in their homes, and that’s why the mortgage securities, especially second mortgages of all kinds, are “toxic.” The housing market will remain paralyzed as long as so many homeowners are under water. Remember, half of all home purchases are by people who are moving from a home they own. If you bail out lenders, but not the underwater borrowers, who are the lenders going to lend to? If the correct program was used to convert excess mortgage debt to 30-year 3% fixed-rate federal loans not secured by the properties, and shared equally by the homeowner and her lender, the banks and their customers would be bailed out and the values of mortgage securities would be automatically restored, and the economy would recover quickly, all at zero cost to the taxpayers. The correct solution to the multi-faceted crises is the right program of government lending, not government spending and borrowing as with the stimulus package in Congress. A detailed program like that is The AllStreets Bailout Plan found at http://www.themortgagenews.info. In ordr to be fair to all taxpayers, every citizen gets the right to a federal loan, minimum $5,000, whether they own property or not.