The Oregon Biz Report - Business News from Oregon

Read about accutane journal moderate acne here

Business loans decline — Is Credit Crunch to blame?

July 30, 2009

By Bill Conerly, Businomics, Conerly Consulting,

Bank loans to businesses for commercial and industrial (C&I) purposes continue to decline.  That by itself does not prove that we are in a credit crunch.

Credit crunch definition:  “When credit is rationed by non-price means in a way not typical for that type of credit at that time of the business cycle.”  My definition excludes tightening of credit simply by raising interest rates, and it also excludes the tightening of credit that is normal during recessions.  The concept we’re trying to get at is abnormal tightness.

Do we have that now?  Here’s a picture of C&I loans outstanding by banks.  For each of the past 10 business cycles, I measure the dollar value of loans outstanding divided by the value of loans outstanding at the time when the business cycle was at its peak.  So a value of 1.2 on the chart says that loan volume is 20 percent higher than it was when the business cycle hit its peak.

Three observations:

1) In the latest cycle, loan volume grew surprisingly fast in the early months.  Maybe NBER’s Business Cycle Dating Committee has the cyclical peak wrong.

2) There seems to have been a little blip up in October of last year, probably caused by borrowers who were closed out of the commercial paper market exercising their standby lines of credit.

3) Loan demand is usually soft in a recession and immediately following.  That makes sense given what we know about inventories and capital spending, the two main triggers of C&I loans.

So are we in a credit crunch?  I think not.  It’s simply garden variety credit tightening combined with weak demand for loans.

(Note that this discussion does NOT include consumer loans or real estate loans.)

How does credit availability affect the economic forecast?  I think that business demand for credit will be soft for its own reasons, but limited even more by normal bank behavior of tightening credit standards in the wake of a recession.

  
Print This Post Print This Post    Email This Post Email This Post

Discuss this article

business credit July 30, 2009

I think we are not in a credit crunch, as loans, credits are still provided at all!!!

small business credit August 28, 2009

very bad situation-the decline of bank loans!!!! hope it will be better soon!

Leave a Reply

Your email address will not be published. Required fields are marked *

Top Business News

 

Top Women's News

 

Top Natural Resource News

 

Top Faith News

 

Copyright © 2016, OregonReport. All Rights Reserved. | Terms of Use - Copyright - Legal Policy | Contact Oregon Report

Stay Tuned...

Stay up to date with the latest political news and commentary from Oregon Business Report through daily email updates:

Delivered by FeedBurner

Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.

RSS Twitter Facebook

No Thanks (close this box)