Banks Lending Like It’s 2007 Belied by $10 Trillion Hoard
By Sridhar Natarajan Mar 28, 2014 1:22 PM ET
For all the warnings from the Federal Reserve over excessive risk-taking as loan growth soars to levels last seen just before the crisis, bankers still have 10 trillion reasons to lend.
Thats the dollar amount that banks hold in deposits in the U.S., which exceeded the value of all loans by a record $2.5 trillion last month. Banks are amassing more cash even as lending to U.S. companies this quarter is poised to increase by the most since 2007, according to data compiled by the Fed.
The lending surge reflects confidence among the nations banks to extend credit as the Fed scales back its monetary support of the U.S. economy, while the cash cushion may temper the concerns of regulators who in recent months have warned that excesses may be emerging in riskier parts of the loan markets. Seven years ago, when banks were lending at a faster pace, the amount that was lent outstripped cash deposits.
Banks are not exhibiting anywhere close to the kind of excess we saw leading up to the crisis despite the growth in loans, John Lonski, the chief economist at Moodys Capital Markets Research Group, said in a telephone interview from New York. They have a lot of lending capacity and they believe business conditions will remain good enough that borrowers will be able to meet their obligations.
Cash deposited at banks increased to the record level through the week ended March 12, compared with loan assets of $7.5 trillion, the Fed data showed. This is a reversal from October 2008 when loans exceeded deposits by $205 billion.
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http://www.bloomberg.com/news/2014-03-27/banks-lending-like-it-s-2007-belied-by-10-trillion-hoard.html