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Banks are lending again

November 10, 2011

By Bill Conerly, Businomics, Conerly Consulting

The latest data from the Federal Reserve Survey of Senior Loan Officers show that banks continue to loosen their credit standards and narrow their interest rate spreads on commercial and industrial loans.

The chart shows the percentage of banks that say they are tightening minus the percentage that say they are easing credit standards. Thus the negative numbers we’ve seen lately indicate more easing than tightening. There is no way to gauge the magnitude of the tightening/easing actions, just the number making a change in a given direction.

“Spread” is bank jargon for the interest rate that the bank charges minus its own cost of funds. The chart shows that banks are competing for the credit-worthy borrowers.

The volume of bank lending to businesses is on the rise as well.

Bankers tell me that they would like to make more loans to the most credit-worthy customers. However, I think that despite the recent easing of credit terms, banks are still unwilling to make loans to marginal customers (whom they would have lent to five years ago). There seem to be few alternatives for businesses that are not bank-worthy, whereas a few years ago there were plenty of commercial finance companies willing to lend to less credit-worthy firms.

Maybe some tightening of commercial credit was needed, but my gut says banks have been forced to go overboard by overzealous regulators.

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Bob Clark November 10, 2011

The economy could be better if not for Obama’s self inflicted headwinds (especially concerning oil supply and the consequent drag of higher than otherwise gasoline prices); but the economy is gradually growing in spite. This speaks to not doing another round of Obama’s debt and/or tax funded stimulus. Time to freeze federal spending indefinitely and to allow easy money to start kicking up federal tax revenues. This is the most gentle path to balancing the federal budget, letting father time heal the economy and putting a lid on government spending and intervention.

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