Lending Still Contracting

In today’s WSJ:

Lending at many of the nation’s largest banks fell in recent months, even after they received $148 billion in taxpayer capital that was intended to help the economy by making loans more readily available.

Ten of the 13 big beneficiaries of the Treasury Department’s Troubled Asset Relief Program, or TARP, saw their outstanding loan balances decline by a total of about $46 billion, or 1.4%, between the third and fourth quarters of 2008, according to a Wall Street Journal analysis of banks that recently announced their quarterly results.

“It has failed,” said Campbell Harvey, a finance professor at Duke University’s business school. “Basically we have dropped a huge amount of money … and we have nothing to show for what we actually wanted to happen.”

In a survey last month of 569 U.S. companies, Mr. Harvey and researchers at Duke and the University of Illinois found that 59% felt constrained by a lack of credit. Many of those firms are shelving expansion plans and cutting jobs as a result of funding shortages, according to the survey, which is expected to be released this week.

An increase in leading is one of my key indicators for signs of a bottom.  Without working capital, businesses cannot grow.

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One response to “Lending Still Contracting

  1. It’s paradoxical, but the banks are doing exactly what you’d expect them to do: taking the money from the Feds and putting it … in the bank. They’re looking to shore up their balance sheets, not chase new loan business. While that does not provide a whole lot of immediate relief to would-be borrowers, at least it staves off the near-term risk of cascading bank failures. So I’m not sure that this result constitutes fundamental failure of the stimulus policy, even though it has not yet provided the benefits touted by the Treasure, at least so far.

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