Bank Lending Keeps Dropping
According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.
The total dollar amount of new loans declined in three of the four months the government has reported this data. All but three of the 19 largest TARP recipients with comparable data originated fewer loans in February than they did at the time they received federal infusions.
The Journal's analysis paints a starker picture of the lending environment than the monthly snapshots released by the government and is a reminder of the severity of the credit contraction. One reason for the disparity: The Treasury crunches the data in a way that some experts say understates the lending decline.
The Obama administration is scrambling to defuse a backlash surrounding the bank bailout. Political disquiet over banks' perceived lack of lending, as well as their spending on bonuses and perks, has provoked skepticism about the administration's ability to revitalize the banking system. Any evidence that banks are lending less could reinforce criticism of the program, and put pressure on plans crafted by Treasury to unfreeze credit markets and support bank balance sheets. With bailout funds dwindling, one option the Treasury might pursue is to turn loans into common equity.
Speaking in Trinidad on Sunday, President Barack Obama said that he'll require "accountability" for the U.S. banks receiving bailout money, and that he would not put taxpayer money into a "black hole."
In a news release Wednesday unveiling the February lending numbers, the Treasury touted "the relatively steady overall lending levels." Without the capital injections, lending would have suffered a far-steeper drop, it said. "Within this challenging environment, the February survey shows that banks extended only a slightly smaller total volume of loan originations in February than January."
The Treasury analyzed the monthly percentage change in the amount of new loans at each of the top 21 recipients of taxpayer funds. It then calculated the median change in lending at the 21 banks. (The median is the figure that falls directly in the middle of a string of numbers.) By that measure, the Treasury said, lending dropped 2.2% in February compared with the prior month
Using the same raw data, the Journal's analysis focused on the total amount of new loans by the 21 banks, a more comprehensive measure. In February, that total fell 4.7% from January, more than double the government's estimate of the decline in the median. The Treasury hasn't released its own tally of the October to February decline.
A Treasury spokesman said that "no one metric can accurately capture lending activity across the nation. That's why we provide the data set in full." He said that "the declining levels of lending obviously reflect current economic conditions. But Treasury firmly believes that lending levels would be much lower" without the government's capital injections.
The level of lending is an important factor in determining how fast the economy will turn around. It's also key for the government in deciding whether to allow individual banks to repay federal funds. If the Treasury believes doing so will diminish the economy's lending capacity, it could take a hard line on repayments.
Banks defend their lending, saying they're eager to issue new loans, refinance existing ones and modify those in danger of default.Complicating their efforts, bank executives say, is a decline in demand among consumers and businesses.
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