Blog
…But How Do We Know That The Banks Aren’t Lending?
November 25, 2009 by Neil · Leave a Comment
Lack of credit for buyers puts a major damper on chances for recovery in commercial real estate and the attendant multifamily asset class.
In a recent survey, this was the #1 ranked barrier to the commercial real estate recovery.
How do we know beyond whispers and anecdote that banks are not lending?
1) As overall industry assets fell for a third straight quarter, loan balances dropped 2.8%, to $7.4 trillion. This was the biggest percentage decline since 1984, when the agency began reporting such data; balances were down 7% from a year earlier.
2) Lending dropped in most categories. Commercial and industrial loans were down 6.5%, to $1.27 trillion. Residential mortgage loans declined 4.2%, to $1.93 trillion.
3) Banks are hiding their money under their mattresses: Balances at the Federal Reserve banks grew 36.7%, to $531 billion, and holdings in Treasuries grew 49%, to $86.6 billion. Total equity capital grew 2.9%, to $1.46 trillion, helped in large part by the appreciation in banks’ securities portfolios.
FDIC Chairman Sheila Bair said, “Cleansing balance sheets is absolutely necessary to strengthen the industry’s capacity to lend to businesses and consumers.” This, of course, is hard to incentivize with the erosion of mark-to-market accounting practices.
Until Uncle Sam gets medieval with banks, and threatens charter revocation for failure to lend, we are not exiting from the commercial real estate crisis anytime soon.
