Monday, January 26, 2009

Bank lending down, but not enough

The front page of today's Wall Street Journal reports "Lending drops at big U.S. banks." The opening line reads "Lending at many of the nation's largest banks fell in recent months, even after they received $148 billion in taxpayer capital that was intended to help the economy by making loans more readily available. Ten of the 13 big beneficiaries of the Treasury Department's Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008, according to a Wall Street Journal analysis of banks that recently announced their quarterly results."

I too am shocked, but for the exact opposite reason. The banks are starving for capital, profits are non-existent, revenue has dropped dramatically, and they are going bankrupt, getting taken over, or being nationalized. They should be dramatically cutting back their lending, preserving capital, and reducing risk. And considering the riskiness of lending in this economy, where the corporations they lend to are also going bankrupt left and right, a 1.4% decline in lending is not nearly enough.