Banks Behaving Badly
Don't get confused by the headline, it's not referring to Bank of America foreclosing on a house paid for in cash. Perhaps behaving isn't the word so much as performing.
U.S. banks posted their sharpest decline in lending since 1942 at the end of last year, suggesting that the industry's continued slide is making it harder for the economy to recover.
While top-tier banks are recovering at a faster clip, the rest of the industry is still suffering, according to a quarterly report from the Federal Deposit Insurance Corp. Banks fighting for survival, especially those plagued by losses on commercial real estate, are less willing to extend loans, siphoning credit from businesses and consumers.
Besides registering their biggest full-year decline in total loans outstanding in 67 years, U.S. banks set a number of grim milestones. According to the FDIC, the number of U.S. banks at risk of failing hit a 16-year high at 702. More than 5% of all loans were at least three months past due, the highest level recorded in the 26 years the data have been collected. And the problems are expected to last through 2010.
As always, this is an appropriate point to indulge in a little shameless self promotion. The Bank Fail Friday team is here to bring you all the bank failure deliciousness so don't forget to tune in every Friday.
Again, banks are tight except when being forced to make risky loans to essentially bankrupt municipalities. What does it matter? It isn't their money. (more WSJ):
Most surveys suggest a combination of factors is at play. A January survey by the Federal Reserve of senior loan officers showed banks have slowed their efforts to tighten lending standards, but have not backed off the more stringent loan terms they put in place over the past two years. The same report, however, also showed that demand for loans from businesses and consumers continues to fall.
"Lending has been weak and spending by businesses and consumers has also been weak," FDIC Chief Economist Richard Brown said.
Bankers, on the other hand, say creditworthy borrowers are hard to come by. Fifth Third Bancorp recently extended a $3.5 million line of credit to Chicago-based One Hope United after the state of Illinois, beset by a budget crisis, delayed payments to the child-and-family-services provider.
If that's not an indirect Illinois bailout, I'm not sure what it is. Hell, I don't really know what isn't a bailout these days. Fifth Third doesn't have a very good track record at this point.