Credit Starting To Loosen Up
Even though some numbers released this month have given pause to the idea that we’re on our way to recovery, one good sign is that lending activity among large financial institutions increased by 27% in March compared to just a month earlier. The loans were made in all different business lines, from credit card issuance to home equity loans.
On top of the increasing loan business, total loans outstanding for these institutions contracted by almost 1%, showing that banks are still collecting more money than they are distributing in loans.
The growing volume of loans is great news after financial institutions have been under scrutiny for collecting bailout funds but hoarding the cash instead of making loans to put it into the system. Banks were allegedly stockpiling money to cover loan losses that they anticipate are still to come. There is some evidence that banks were sitting on the cash on bank balance sheets, but March’s loan numbers are a good sign that banks are back in the business of lending.
The slowest areas for lending were in business loans and commercial real estate, which is not a surprise considering how many companies are downsizing and scaling down operations. There are also other factors that make some economists feel that too much is being made of the positive numbers. First, seasonal factors usually increase lending during spring and summer. In addition, there are three more business days in March than there were in February, a factor not reflected in the numbers.
Although there are still potential borrowers reporting that they are struggling to find financing, it appears that credit conditions are improving and loans are being made more readily than they have been during the past several months, a great sign for a stabilizing economy.
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