Paul Miller

  • 20 Feb 2013 at 4:37 PM
  • Banks

Banks Doing Too Much, Too Little Lending

One lazy but fun thing to do as a financial blogger is to find two publications saying the opposite thing on the same day, and then be all “haha, dopes.” Business Loans Flood the Market, the Journal informed us this morning, while Bloomberg tells us that by another measure loans are at a five-year low, though being Bloomberg the way they put it is JPMorgan Leads U.S. Banks Lending Least of Deposits in 5 Years. So is there a flood of loans, or a least of loans? Which is it, guys?

Well, both, obviously; “haha, dopes” would not be fair here. Loans are up, relative to the last couple of years, but loans as a percentage of deposits are at a low – 84% for the top 8 commercial banks, per Bloomberg, as opposed to 101% in 2007. Bloomberg acknowledges this tension:

Falling ratios don’t mean banks have shut the lending spigots. Measured in dollars, total loans rose in the fourth quarter for the biggest eight lenders to $3.9 trillion.

As does the Journal, which notes that “The push comes at a time when many banks have been flooded with deposits as slow economic growth and low interest rates crimp investment.”

The way I think about banks is that they do two somewhat separate things, which are:

  • satisfy some people’s demand for money claims (short-term, safe, exchangeable-for-fixed-amount-of-cash bank liabilities),1 and
  • satisfy other people’s demand for loans.

It’s not entirely obvious why those things would move in lockstep: Read more »