Drop in Bank Loans Greatest in At Least 25 Years

Monday, November 30, 2009

Despite the hundreds of billions of dollars loaned by the federal government to the nation’s largest banks, the financial industry continues to be stingy with loans itself, creating a big drag on economic recovery. Lending fell by 3% ($210.4 billion) in the third quarter of 2009, marking the steepest drop since the Federal Deposit Insurance Corporation began tracking such data in 1984. FDIC Chairman Sheila Bair said large banks, such as Bank of America, Citibank and JPMorgan Chase, accounted for 75% of the decline.

Another problem causing the shortage of loans is the continuing collapse of many smaller banks. The FDIC has had to rescue 124 financial institutions so far this year, and experts warn that hundreds more will likely fail in the coming months. As of the end of September, 552 banks (or 7% of the entire industry) were on the FDIC’s “problem list.” Bank failures have placed an enormous strain on the FDIC’s resources, causing the federal agency’s to post its first negative balance for its insurance fund since 1992, when regulators were cleaning up the mess from the savings-and-loan crisis.
-Noel Brinkerhoff
Lending Declines as Bank Jitters Persist (by Damian Paletta, Wall Street Journal)
No Lending, No Recovery (by Colin Barr, CNN Money)


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