Those who thought the massive Fed Bailout of Banks by both the current and previous Presidential Administrations would cure all our lending ills - are likely disappointed!
Despite big cash infusions from Washington totaling hundreds of billions of dollars, the total amount of loans held by the 15 largest banks in the U.S. has not grown. In fact, the portfolio of these bank loans actually fell, by 2.8% in the Second Quarter, 2009. Further, according to an analysis by The Wall Street Journal, in a story by David Enrich and Dan Fitzpartick, most of the new loans during the Second Quarter came from either renewing or extending lines of credit to businesses, or from refinancing of existing home mortgages.
The banks reviewed include J.P. Morgan Chase, Bank of America, Citigroup, Fifth Third Bancorp, Regions Financial, U.S. Bancorp, and others. The Top 15 Banking Institutions hold 47% of all federally-insured savings deposits nationwide. They received, collectively, $182.5 Billion in taxpayer-funded money from the Fed's Troubled Asset Relief Program. Still, as of the end of June, 2009, these same banks showed $4.3 Trillion worth of loans across their Balance Sheets, down 2.3% versus March 31st.
Economic experts say the tightened purse strings of these larger lenders are making it harder for an economic recovery to take hold.. Some predict that increased lending levels will not actually occur until the Second Half, 2010.
Although many are disappointed that the Fed Relief Program did not result in an increase in loan volume overall, others contend that the TARP was not designed to increase loan volume, but to prevent major banking system collapse. These supporters feel the program has achieved that.
One analyst, Gerald Cassidy of RBC Capital Markets, sees the problem as few companies and homeowners are paying down their existing loans. Until they do, and lenders more favorably adjust their underwriting standards, in his opinion, the capital markets will not loosen, and an economic rebound will not begin in earnest.
But it appears "forcing" banks to lend, by offering considerable infusions of cash and hoping they will do so - that formula doesn't seem to be working!
Please see our post today via BlogChicagoHomes.com.
DEAN & DEAN'S TEAM CHICAGO
Yet, they show massive profits. HOW can that be???
Easy. They took the hand-outs from the fed and invested it in Treasuries.
No risk, guaranteed profits and preserve their reportable leverage.
The bail-outs hand-outs were, after all, the government's idea. Who can blame the Wall Street gangs??
A good example of over-correcting . .now they are taking the wrong path again. .
Could the drop in loans be attributable to banks selling non-performing loans or transferring them to REO's?
I am glad banks are stricter with lending . Consumers will not be tempted to buy homes they cannot afford.
So what did they use the $$$ for ? No wait don't tell me ,let's keep the day positive !!!
It is not a slam dunk anymore to get a loan. That is for sure. But in a way credit should have been tighter than it was 3 years ago. Maybe just nbot this tight. Thanks for the post
Amazing that small business owners such as myself have to beg to buy a home. I show a great p&l but since I'm in the RE business they don't want to touch me with a ten foot pole (as my grandfather use to say) No guaranteed income was the issue.
I did get approval from one of my local FDIC banks. 800 score and almost nowhere to go for a loan.
Tough call on what to do. I do think that before the TARP, financial institutions where on the brink of helping to create the Great Depression II. I don't know myself how to change this. if the banks are truly forced the cries of Big Government and/or socialism will be heard. On the other hand, letting banks do there business as they like is more unregulated capitalism. Surely there is some happy medium somewhere.
Dean: That's a great observation. Thanks for the post! It's true. Underwriting guidelines are tighter than ever. I can't tell you how many applications I've taken from good borrowers this year whom I can't help. Personally, I think we're at least a year away from the start of a recovery. Banks aren't interested in lending money; especially since their every move is being scrutinized by the FDIC. Thanks again!
As a former banker and commercial loan officer, the banks are constantly looking at assets to enhance their portfolio yield. There were times when I was lending that perfectly good loan requests were turned away because they didn't "fit".
It's not surprising to me that the banking industry is taking a "wait and see" posture because they know what their public image looks like today. Our cash infusion has given them opportunity to weather this storm and start lending again after a return to more fundamental principles.
What is more at issue is equity in lending. Mortgage interest rates are at record lows yet credit card rates have not moved, and access to the low mortgage rates are restrictive to put it mildly. If noone (government) tells the banks what to do they won't do it. I mean theirs is a mission to improve their bottom line. That they did it out of the wallets of the public is really not their concern.
Dean,
It sounds like the banks are as scared of our future as many of us are!
Obama said some banks had paid back the money. I wonder how many.
Good stuff Dean. Nice gold star.....I would have to agree. Also, banks are told to lend more money, but they better be able to cover their debts....which is it? Solvency or lending? Give me a break.
Seems like the bailout was sold as a way to loosen up lending. I don't remember anyone saying that we would give them money so they could buy other banks or pay their bills. Hmmmm.
Our money was given to them so they wouldn't fail, but then we dont get that money back when we need it...why was it given in the first place? Oh yeah, for BONUSES...
As Ben Bernanke stated in his testimony the TARP was given to these banks, reluctantly, to prevent a major meltdown in the financial markets. It would have been catastrophic. If it didn't occur we wouldn't just be talking about tighter loan restrictions but instead we would be talking about a total dearth of lending and a runs on the banks. However, it does stink that they are hoarding cash at a time when the country needs them to lend. I do believe though that we are starting to see things turn for the better. Existing home sales in June hit their best level in 8 years, the stock market is up 33% from it's bottom in March, and the stimulus money is starting to get circulated into the economy. I think by year's end we will see unemployment numbers starting to drop, job losses diminish, and GDP start to return to positive levels. By 2010 we should be in full recovery mode. We just have to be patient. I always find your posts very informative Dean. Best of luck to you.
Show me the money!!! Oh, yeah, it's locked where?
Dean,
The banks are no more interested in investing in Main Street than the man in the moon!
Mike in Tucson