American Bankers Association Says Banks Continue to Lend
Of interest to readers of Nation’s Building News is the following letter to the editors of The Wall Street Journal. It appeared in the Feb. 2 issue and was submitted by Ed Yingling, president and chief executive of the American Bankers Association in Washington, D.C.:
“Clearly there are major dislocations in the credit markets, but this is mistakenly being translated as ‘banks aren’t lending’ (‘Lending Drops at Big U.S. Banks,’ page one, Jan. 26). Thirty years ago, banks provided about 60% of all credit. Today, traditional bank lending provides less than 30%, and nonbank funding now dominates the credit markets. The financial turmoil of the last 18 months has made investors risk-averse; for example, the commercial paper and securitization markets are in disarray. This leaves it to traditional banks to fill the hole.
“Meanwhile, loan demand has declined, which is typical in a recession as consumers, many of whom are concerned about job security, choose to hold onto their cars and homes, and businesses. With fewer customers, businesses have a reduced need to finance inventory, buy equipment or expand operations. As the economy weakens, fewer businesses and individuals qualify for loans.
“Nevertheless, banks have continued to lend. Bank lending actually increased in 2008, although as the recession deepened at the end of the year, lending probably decreased marginally. Because banks now provide less than one-third of the credit in the economy, it is a challenge for them to offset the decline in volume from nonbank lenders. Ignoring the bigger economic picture and the cause-and-effect relationship between a recession and borrower behavior misses a critical point. Banks want to lend. It’s what they’re in business to do and what they will continue to do.”
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