Raw Finance

According to the U.S. Treasury Department’s Monthly Bank Lending Survey, the overall outstanding loan balance (of all respondents) fell 1 percent from August to September 2009 at the top 22 participants in the Capital Purchase Program (CPP), while total originations of new loans increased 2 percent.  Total originations of loans by all respondents rose in 4 categories (commercial and industrial (C&I) renewals and new commitments and commercial real estate (CRE) renewals and new commitments) and fell in 4 loan categories (mortgages, home equity lines of credit (HELOCs), credit cards, and other consumer lending products).

Generally what the report shows is that financial institutions are busy covering up their problem commercial loans while holding back credit to consumers.  Demand plays a role here too, so I’m not throwing all the blame on banks.  Consumers are delveraging, so the demand for consumer debt has dropped significantly.

The survey results showed the following with regard to consumer debt:

New home purchases and refinancing originations fell in September.  Respondents reported that although originations decreased from August to September, applications volume increased at the tail end of September as rates began to decline.  HELOCs saw a decrease in total originations, and institutions indicated that demand remains below 2008 levels.  Outstanding credit card balances held by the surveyed institutions decreased 1 percent in September, which is consistent with low consumer spending patterns and a higher savings rate.  Other consumer lending declined in September as student loan disbursements fell from a seasonal high in August.  The sunset of the government’s “Cash for Clunkers” program caused a sharp decline in demand for auto loans, which contributed to the decline in other consumer originations. Although banks reported again that demand in the CRE market and the C&I market was well below normal levels, renewals and new commitments in both CRE and C&I loans increased.  The outstanding balances of CRE and C&I loans declined, however.

The survey results seem to confirm the view that we are entering a period of slower-than-normal growth. This likely means muted returns in equities and other investments.  However, slow growth is not the same as no growth or contraction, and so those looking for the next big decline in equities may be just as disappointed as those looking for a continued lift.  To be sure, markets are likely to remain volatile on a day-to-day basis as the tug-of-war between bulls and bears continues, economic uncertainties remain, and the federal government plays a bigger role in the economy.  But one should be cautious about positioning for large moves in the overall market in either direction.

To view the Monthly Bank Lending Survey on the Treasury’s Financial Stability Web site, please click on the following link:  Monthly Lending and Intermediation Snapshot.