Large U.S. Banks Revive Business Lending
It's not yet a convincing turnaround, but the big-picture numbers suggest that commercial banks are increasing their lending to medium and small-sized businesses, reports The Wall Street Journal's online edition. Let's hope it's true, because it's a good sign for business activity in the near term, and the recovery of lending is usually a late-stage signal, meaning the recession may be convincingly overwith.
Truth be told, the recent increase in bank lending is not the first in 2010. Looking at large banks' C&I (commercial and industrial) loans at month end (the red line), lending was up in March, July and October, but only by small amounts that were quickly given back.
Click to enlarge
But the latest read, $612 billion for December 15, makes five weekly increases, and is the highest amount since late April. Still, the peak in large banks' C&I loans was $827 billion in early October 2008, around the time of the Lehman Brothers failure, and loans stand 26 percent below that high-water mark.
Total loans and leases of all commercial banks (the blue line) are not yet rising, but do seem to be flattening out. (I'm not sure what that jump in the blue line represents -- it's a sudden one-week spike of $450 billion in a trend that is otherwise gliding down. I tried to find some explanation on the Fed's web site with no luck.)
Naturally this is a good thing for business and employment -- here's how Ruth Simon of the Journal puts it:
An uptick in business lending is an optimistic sign for the economy and can help to make the recovery self-sustaining. Such loans likely will be used by businesses to expand their operations, which could lead to new jobs and eventually to increased borrowing and spending by hired workers.But big banks say they are opening the pocketbook:
At J.P. Morgan Chase & Co., loans outstanding to "middle-market" companies-those with revenue between $10 million and $500 million-have increased 7% this year, with the sharpest growth in the third and fourth quarters, the bank said. Its lending to small businesses is up more than 40% in 2010.
...
Winston-Salem, N.C.-based BB&T Corp. last year stepped up its focus on larger middle-market and corporate customers and increased its corporate banking staff by 50%, said Tol Broome, chief commercial-credit officer. The result was a 20% increase in loan production in the third quarter.If the resumption of lending is real, it's a positive signal for the economic cycle as well:
Commercial and industrial lending "is the last thing that turns in a business cycle," said Mark Zandi, chief economist of Moody's Analytics.One reason to think the strength in lending may not persist is that it has come awfully soon. In the 2001 recession it took three years for bank credit to reverse course, versus two years and a half if lending has turned, and of course this is a much deeper downturn.
Let's hope for a steady progression of economic news that points upward -- Happy New Year.