Tags: banks | lending | loose | loan

Worry About Banks’ Tight Lending Policies Shifts to Worry About Loose Policies

By Dan Weil   |   Friday, 22 Feb 2013 07:58 AM

After the 2008-09 financial crisis many banks heard criticism that their lending policy was too restrictive, but now there is concern that it’s too liberal.

Commercial and industrial (C&I) loans soared 16 percent last year, gaining 4.4 percent in the fourth quarter, according to research firm SNL Financial.

Banks have plenty of money to lend, The Wall Street Journal reports. Deposits are mounting as bank customers don’t see profitable alternatives for their money, though perhaps some of that cash will ultimately move to the stock market.

Editor's Note:
Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Deposits have soared 29 percent since mid-2008 to $9.06 trillion, according to the Federal Deposit Insurance Corp.

"Banks are loaded with liquidity and starving for growth," Paul Miller, an analyst with FBR Capital Markets, tells The Journal.

But there are signs banks may be starting to go overboard.

"When competition for loans increases, that shows itself in thinner pricing and eventually in loan structures that are weaker than what they had been," Allen Tischler, senior vice president of the Moody’s Investors Service banking team, tells The Journal.

Some bankers say they have had to pull away from possible loans because competitors offered borrowers overly generous terms.

To be sure, despite the increase in C&I loans, the eight biggest U.S. commercial banks are lending only 84 percent of their deposits, the lowest ratio in five years, according to Credit Suisse Group. In 2007, they were loaning 101 percent of their deposits.

“They’re just kind of stuck, that’s why right now banks are keeping things [loans] very short,” Nancy Bush, an analyst at SNL Financial, tells Bloomberg. “The banking outlook is maddening, it’s hard to see where that real inflection point is.”

“Bankers out there are drowning in liquidity — we’re dying to make loans,” Bob Seiwert, vice president at the American Bankers Association, tells Bloomberg.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

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