One of the mantras of the current financial crisis is the oft-repeated charge that "banks won't lend". This has been repeated so often that it is accepted as a universal truth and is usually spoken of with a slight amount of derision and anger, as if to say "How dare they take our money and not lend it out."

This conventional wisdom is supported to some extent by the most recent release of the Federal Reserve senior loan officer opinion survey on bank lending practices. This quarterly survey polls top lending executives across the U.S. to see if they are making it harder to get loans. The October survey showed that banks "tightened lending standards" in all loan categories over the previous three months.

Does This Claim Stand Up To Examination?
If we look at recent earnings reports from several large regional banks, we see loan growth at many of them.

SunTrust Banks
(NYSE:STI) reported that average loans for the fourth quarter ended December 31 were $127.6 billion, up 5.4% on a year-over-year basis. Loan growth was $2 billion, or 6.3% on a "sequential quarter annualized basis".

Comerica (NYSE:CMA) reported that average loan growth in 2008 increased by 6% over 2007. This excluded loans in the financial services division.

Regions Financial (NYSE:RF) made $12 billion in new or renewed loans in its Q4. Ninety percent of these loans were to businesses and represented a 3% sequential growth rate.

KeyCorp (NYSE:KEY), the holding company for KeyBank, said that average loans and leases grew by $5.43 billion, or 13%, in the quarter. The growth rate benefited from the transfer of existing loans from the loans held for sale category to the loan portfolio.

Admittedly, the survey of banks above is not that scientific. If I searched enough I could probably find a list of banks that saw a decline in loan growth in their most recent quarter. Banks can also probably play some statistical tricks to show loan growth. (For more on examining a bank's books, check out Analyzing A Bank's Financial Statements.)

The Lesson Here: Don't Believe Everything You Read
The news media tend to sensationalize events rather than just report news. The phrase "banks won't lend" implies a bank not making any loans during the quarter. A bank can no sooner not make loans than not breathe, since the alternative to making a loan is parking funds in a low-return safe security that yields almost nothing. Is it possible that banks are now doing what they should have done all along, which is make loans to those able to pay them back? It seems that this is what we want them to do, so we can't fault them for finally doing it.

Final Thoughts
Also, investors should understand that the banks are not getting the TARP investment for free from the U.S. Treasury. The banks pay a 5% dividend every year to the taxpayer. Although some surveys and conventional wisdom seem to show difficulty in obtaining loans in the current environment, bank earnings reports provide some unscientific contradictory evidence.

Find out how economic capital and regulatory capital affect risk management. Read How Do Banks Determine Risk?

Related Articles
  1. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  2. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  3. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  4. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  5. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  6. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  7. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  8. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  9. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  10. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center