When Will Banks Start Lending Again?
Over the past several months, billions of dollars have been poured into the banking system in order to thaw frozen credit markets. Several of the biggest banks in the country have made announcements this month about how they are returning to profitability and how pleased they are to be increasing lending activities again. Yet the Treasury Department showed that lending activity dropped by 2.2% in the month of February compared to a month earlier.
Taking a closer look at the numbers, we can see that lending has picked up in some areas, but remains stagnant in others. Mortgage lending is on the rise, increasing by more than 35% as more homeowners take advantage of the opportunity to refinance at historically low interest rates. This number could have been even higher if it hadn’t been for stricter lending standards. Home equity lines of credit also were up by more than 17% compared to just a month earlier.
On the downside, lending to businesses and industrial borrowers was down by 47%. It’s hard to tell from these numbers just how much of the decline can be attributed to businesses being declined for loans versus fewer applications for financing from corporations.
Of the 21 banks surveyed, all of which have received bailout money from the government, 9 banks were able to increase lending activity while 12 banks cut back on lending. Banks that received taxpayer money to help them continue operations have been under a great deal of scrutiny over how they have used the funds that were loaned to them. A lack of oversight and accountability makes it hard to know exactly what banks are doing with the TARP money they received.
The economy will recover eventually, and is showing signs of doing so in some areas. It will be difficult to build positive momentum without banks making an earnest effort to increase lending. Although there has been growth in isolated areas, this data shows that we have a long way to go before the credit crunch is truly behind us.
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