Tags: asset | banks | decline | loans

Brookings Economists: Big 4 Banks 'Show Troubling Decline in Loans'

By    |   Friday, 29 May 2015 09:00 AM

While banks' loans to businesses rose 8.5 percent in the first quarter, the overall lending trend for the country's four largest banks is worrisome, say Martin Neil Baily and Sarah Holmes, economists at the Brookings Institution.

The big four are JPMorgan Chase, Citigroup, Bank of America and Wells Fargo.

"Since 2010, the share of banking sector assets held by the Big Four has declined. This trend is likely to continue in light of regulatory pressure and capital requirements," Baily and Holmes write in an article for Real Clear Markets.

It's difficult to predict the impact of that development on the economy and banking industry.

"However, our research shows a troubling decline in loans in relation to deposits, meaning banks have the ability to make loans but aren't — either due to concerns about risk, or they may be restrained from lending by regulatory pressures," the duo states.

The economy needs a healthy loan market of course. "The markets froze during the crisis due to fear, but was expected to increase as the economy recovered," they explain. "That doesn't seem to be happening as much as our economy needs."

Meanwhile, the 2010 Dodd-Frank financial reform law has helped accelerate the shrinkage of small banks, according to a study by Harvard researchers Marshall Lux and Robert Greene.

Community banks' share of U.S. banking assets and lending markets has dropped to 20 percent from more than 40 percent in 1994.

"Interestingly, we find that community banks emerged from the financial crisis with a market share 6 percent lower," Lux and Greene write.

"But since the second quarter of 2010 — around the time of the passage of the Dodd-Frank Act — their share . . . has declined at a rate almost double that between the second quarters of 2006 and 2010."

The implications could be harmful.

"Dodd-Frank's regulatory burdens are driving consolidation and could result in lending markets less able to serve core economic demands," Lux notes, according to Forbes contributor Carrie Sheffield.

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While banks' loans to businesses rose 8.5 percent in the first quarter, the overall lending trend for the country's four largest banks is worrisome, say Martin Neil Baily and Sarah Holmes, economists at the Brookings Institution.
asset, banks, decline, loans
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2015-00-29
Friday, 29 May 2015 09:00 AM
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