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Has Loan-Making Actually Dropped at Banks?
A front-page article in today’s Wall Street Journal maintains that “lending at many of the nation’s largest banks fell in recent months.”
The WSJ cited as evidence a 1.4% decline last quarter in “outstanding loan balances” at 10 of the 13 large banks to receive TARP funds.
Not so fast. As comments on the article rightly point out, there is a big difference between “outstandings” and “originations.” Here’s one such comment by James DeLuccia:
The story highlights ‘LENDING’ but the data is for ‘OUTSTANDING’ loans – these are completely different yet used interchangeably throughout the article. Outstanding loans are down 1.4% – no shock there, real estate portfolios and mark-to-mark has brought down the values of these assets. Lending is happening but perhaps quarter to quarter that lending is down, but that is not what is communicated. So – is this convenient use of verbiage and statistics, or are banks really not lending at all / lending 1.4% less on a quarter by quarter basis?
Further – what is considered “Lending” – banks provided credit lines to businesses who are pulling down revolvers to keep their finances strong (that is why they have these established credit lines), but this is not considered NEW loans. So, are banks “lending” – of course – how much and where is it going is a huge question as it provides clarity to where the economy is headed.
Looking forward to greater transparency and more prudent business practices.
I couldn’t agree more. This is an important distinction to make, because the article claims banks are reducing their lending “even after they received $148 billion in taxpayer capital that was intended to help the economy by making loans more readily available.” (Why the banks quoted in the story did not address this shortcoming in the article’s thesis is beyond me.)
I did some math on one of the banks listed in the story, KeyCorp. After taking out just chargeoffs, KeyCorp’s outstandings fell by just 0.2% in the quarter. That’s at best an anomaly, when you consider the fact that Key has more than $76.5 billion of loans outstanding.
Rather than raise the hackles of the public, the WSJ should prudently explain the changes in loans outstanding last quarter.
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