The conventional wisdom in the market seems to be that banks aren't lending, but the evidence suggests that so far we have not seen the drops in lending that characterized previous recessions. This is probably due to new capital received from the government, and political pressure from the White House and Congress.

The issue of whether banks are lending is important because no matter how low the Federal Reserve drives rates down, it won't matter without banks extending credit. Data from previous recessions also show that historically, using the last nine recessions as a guide, private sector lending per quarter has contracted 30% on average from peak to trough.

IN PICTURES: Eight Ways To Survive A Market Downturn

New Administration
The answer to the question of whether banks are lending becomes a little easier to discover thanks to the Obama Administration, which has demanded more transparency on what the banks are doing with government money obtained through the Capital Purchase Program (CPP), which came out of the Troubled Asset Relief Plan (TARP) originally initiated by former President Bush. (To learn more about the TARP, be sure to check out our related article Liquidity And Toxicity: Will TARP Fix The Financial System?)

As part of this transparency, the U.S. Treasury just released the first monthly Bank Lending Survey. This is a comprehensive survey of many of the largest banks and what is occurring in regard to lending in all different categories, including commercial and industrial, commercial real estate and residential mortgage lending.

Bank Lending Survey Results
JP Morgan
(NYSE:JPM) originated $50 billion in consumer loans across all categories, including credit cards, autos and mortgages in the quarter. Small- and mid-sized businesses saw $20 billion in new credit.

Wells Fargo (NYSE:WFC) reported that average consumer loans in the fourth quarter increased by 4% year over year. In its report, Wells Fargo made a point of saying that new lending in the quarter amounted to $75 billion, which is three times what the bank received as a TARP investment from the government.

USB Bancorp (NYSE:USB) saw its average loan and lease balance increase by 3.1% excluding acquisitions in Q4 2008.

BB&T (NYSE:BBT) said that it originated 215,000 business and consumer loans totaling $15 billion in the Q4.

Pressure From The Federal Government
One reason that lending has not contracted yet is due to public pressure from the White House and Congress. The CEOs of every major bank were grilled about lending practices in public hearings several weeks ago. President Obama has also made several comments on lending during speeches and press conferences.

Other data from the government also seems to be inconsistent with the conventional wisdom out in the market on loan growth. The Federal Reserve Bank of St. Louis puts out a monthly series of data on growth in different loan categories, and none of them so far are showing a large drop in lending.

No Lending Contraction Yet
The new monthly report from the government shows that a contraction in overall lending has not yet occurred, despite the conventional wisdom that is circulating in the markets. Political pressure and a generous U.S. Treasury are probably responsible for keeping the funds flowing.

To make your own comparisons between this and previous recessions, read A Review Of Past Recessions.

Related Articles
  1. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  2. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  3. Economics

    A Look at Greece’s Messy Fiscal Policy

    Investigate the muddy fiscal policy, tax problems, and inability to institute austerity that created the Greek crises in 2010 and 2015.
  4. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  5. Investing News

    What Is The New Credit Card Chip Good For?

    Under current U.S. credit card requirements, credit card issuers are required to issue chip cards as of October 1, 2015. Instead of swiping your card as you do now, you will slide the card into ...
  6. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  7. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  8. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  9. Investing Basics

    5 Reasons to Expect Lower Stock Returns

    Lower stock returns are likely here to stay for some time. Here are five reasons why.
  10. Investing Basics

    What to Cut From Your Portfolio Right Now

    Owning stocks may shortly become too scary for your portfolio. Here's why, and here are some alternatives.
RELATED TERMS
  1. Transferable Points Programs

    With transferable points programs, customers earn points by using ...
  2. The New Deal

    A series of domestic programs designed to help the United States ...
  3. Luhn Algorithm

    An algorithm used to validate a credit card number.
  4. Roll Rate

    The percentage of credit card users who become increasingly delinquent ...
  5. Truncation

    The requirement mandated by the FTC for merchants to shorten ...
  6. Purchase Money Security Interest ...

    A security interest or claim on property that enables a lender ...
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. How does the risk of investing in the industrial sector compare to the broader market?

    There is increased risk when investing in the industrial sector compared to the broader market due to high debt loads and ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!