Some Bankers Still Say Yes
The Journal does yeoman’s job finding banks that have cash to lend:
“U.S. banks posted a 7.5% decline in 2009 in total loans outstanding, the steepest percentage drop since 1942, according to the Federal Deposit Insurance Corp. Consumer lending fell by 3.8% as roughly 7,200 banks and credit unions pulled back on mortgages, credit cards and other loans . . .
Across the country, thousands of other banks and credit unions also are bucking the just-say-no mentality that dominates the headlines. In the wake of the financial crisis that saddled banks with huge losses, the largest 10% of banks by asset size shrank their consumer lending by 4.7% last year, tightening the spigot on loans that aren’t backed by the government.
At many smaller banks and credit unions, though, cash continued to flow. Consumer loans grew nearly 3% at financial institutions that fall in the bottom 50% of the industry in assets, according to the Journal’s analysis of financial-institution data filed with regulators. Some smaller banks and credit unions continued to ramp up their business in mortgages, auto loans and credit cards and gain from the pain of their larger rivals.”
The one thing these lenders all have in common: Their balancde sheets are not festooned with all manner of garbage loans carried at fraudulent levels due to the corrupt rule change Congress foisted on FASB.
These smaller lenders are the only thing standing between a Japan like lost decade or two, and financial health.
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click for larger map
courtesy of WSJ
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Source:
Where to Find the Money
RUTH SIMON and MAURICE TAMMAN
WSJ, MARCH 13, 2010
http://online.wsj.com/article/SB10001424052748704869304575110073746360224.html
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March 13th, 2010 at 1:06 pm
So the smaller banks that weren’t bailed out are making loans and the big ones that were bailed out aren’t.
So what was the point of the bailout again?
March 13th, 2010 at 1:38 pm
The only problem I have with this post is that it makes it sound as if banks look in their vaults and say “Yeah Ive got some money to lend you” when that is not how it happens at all.
In truth at some banks they have such poor balance sheets that the amount they have to charge customers in order to make a profit is prohibitory for too many people. Especially when peoples wallets are shrinking by the week.
This may sound like nit picking but its not. Thinking that banks need money to lend leads one to useless policy prescriptions like the ones offered by W and O (In truth big Ben has been the one I know) which increase a banks reserves to “stimulate” lending while ignoring policies to actually help customers have more money so they can pay off loans and seek more loans.
March 13th, 2010 at 1:51 pm
BUT, what’s the demand for loans? Too many folks and businesses about who are in debt “up to their eyeballs.” Further Fannie and Freddie are like 90% of the mortgage market these days. What’s the likelihood they’re being stuffed with whatever garbage loan an originator can make still? That other 10%? Maybe those are loans backed by 20% down and solid credit scores banks are very happy to keep…
March 13th, 2010 at 2:01 pm
The ‘Bail-Out’ was, in fact, a heist.
gbgasser, above, makes a good point–one, far too many, overlook(-ed)
March 13th, 2010 at 4:43 pm
Chief
That is the EXACT question to be asking. Loans are demand driven NOT supply (reserves) driven.
So the next question is how do you increase demand for loans? Decrease the taxes of people earning under 150,000, I’d say no taxes at ALL on your first 150,000 for at least two years. Of course this will cause the deficit to rise so the next thing to do is to get people to understand that the deficit is MEANINGLESS. Our incoming taxes do not need to match up with spending because once again, like the ‘money to loan’ notion above, this is 180 degrees from how spending/taxation flows. Money needs to be issued BEFORE it can be taxed. That is how it works
Tying our spending decisions to our tax collection rates is not necessary always and everytime. It may be nice at times but certainly not a necessity. Now is one of those times we need to make sure we tax way less than we spend.
March 14th, 2010 at 12:16 am
Thank you, gbgasser.
But prior to you providing “joe on the street” with more dough, the “creativity” of Wall St. & banks needs to be curtailed or we’ll just be right back where we are now in two years’ time.
March 14th, 2010 at 12:21 am
Sorry, but just thought of this to add:
Remember the movie “Slapshot” starring Paul Newman? He decides to play the last game straight (Eddie Shorr–old time hockey.) Then the GM tells him there are scouts in the stands “from every team in the league.” Newman’s reaction? “Scouts?” If Wall St. gets a whif Joe on the street suddenly has dough, we’ll be in the same predicament.
March 14th, 2010 at 9:50 am
It is a many pronged solution to be sure. Curtailing the creativity would be nice and of course that means no “off balance sheet” activity.
A few people need to go to jail still. If we dont see some big boys paying the price for fraudulent activity you can kiss any hope of social cohesion goodbye.
March 14th, 2010 at 11:18 am
Dear Barry:
I really wonder whether, in a rare departure, you’re buying into the Wall Street echo chamber here. Especially regarding lending to businesses.
“Credit Crunch! Save the Banks!” (Repeat.)
From all I can gather, the decline in credit is largely a decline in demand. (People discount this as bankers making excuses, but that doesn’t make sense to me–banks make money by lending, especially when they’re borrowing at zero. And they’re loaded with cash and reserves.)
Businesses don’t take out loans for expansion when they don’t have demand, or prospect of demand.
Here’s some pretty convincing evidence; there’s lots more out there.
http://www.asymptosis.com/the-sky-is-falling-business-lending-down-1-2-percent.html
Is this Credit Crunch meme just a bunch of cheerleading for a financial industry that’s several times larger than is necessary for a thriving economy?
March 14th, 2010 at 3:17 pm
Out of about 8,000 community banks 3,000 of them are going to tank when CRE goes on the skids.
The FDIC is 20 billion in the red propping up 2 trillion – so when 1/3rd of the community banks go south I’d expect the rest to go on holiday.
March 14th, 2010 at 3:22 pm
My company’s experience may shed some light on this. We recently refinanced about $150 million in debt and got good terms from a syndicate of major banks. We didn’t do it because we had to, we simply wanted less restrictive covenants to allow us to put in more equity (without paying down debt) and do more acquisitions.
The lead bank was a bank we had been working with for years. They were in the loans we were refinancing. But even though they knew us and our business well, the due diligence process was excruciating.
It was as if they had put in place all kinds of new checks and hurdles to be sure the loan was secure. Their lending standards were much tougher.
Of course, it also occurred to us that their due diligence attorneys and accountants didn’t have much else going on, so they probably dragged out the process as long as they could to maximize their fees.
So anyway, money is available at reasonable rates if you negotiate hard, but lending standards are clearly much tougher.