Lending By Bailout Recipients Falls Again
Thursday, April 16, 2009
Lending by the nation's largest banks fell 6 percent in February from the previous month, continuing a downward trend that began in October with the financial crisis, according to data published yesterday by the Treasury Department.
The 21 banks in the survey have received more than $211 billion in federal funding to support new lending with the aim of stimulating the economy. The money has not accomplished its purpose.
The banks reported a 24 percent decline in the dollar value of business lending and a similar drop in student, auto and credit card lending. All told, the value of the banks' new loans in February was down by about $16 billion from January.
The only increases were in mortgage lending. Government efforts to hold down interest rates on mortgage loans have driven a refinancing boom. The two largest lenders, Wells Fargo and Bank of America, reported a combined 35 percent jump in mortgage lending from January.
The monthly reports issued by the Treasury are intended to hold banks accountable for their use of federal funding. Initially, the government said its goal was to increase lending, but it has since retreated to the more modest goal of limiting the decline.
Yesterday, the Treasury said it was succeeding by this measure because, it asserted, banks would have made even fewer loans without federal aid. In a press release, the Treasury hailed "the critical role this program has played in stabilizing markets and restoring the flow of credit to consumers and business."
The Treasury also said the decline in lending was due in large part to economic weakness and diminished demand, factors beyond the control of banks.
The banks, in narratives accompanying their submissions, echoed the government's argument and also said they were charging more for some loans.
Twelve of the 21 banks said they made a smaller volume of loans in February. The largest decline was posted by J.P. Morgan Chase, a company widely viewed as among the healthiest large banks, which sharply reduced its lending to businesses. The company said in its filing that the drop was a consequence of the nation's economic problems, in part because of reduced demand from businesses and in part because it was charging higher interest rates to reflect increased risks.
Goldman Sachs and Morgan Stanley, two former investment houses recently chartered as banks, also reduced their business lending by substantial amounts.
The largest increases were posted by Wells Fargo, largely in mortgage lending, and by regional banks SunTrust and Comerica.