Carpe Diem

Commercial lending has almost completely recovered from the Great Recession, and faster than after 2001 recession

The chart above shows weekly commercial and industrial loan volume at both: a) all US commercial banks (blue line, data here), and b) large domestically-chartered commercial banks (red line, data here). A few highlights:

1. Commercial loan volume at large US banks in the first week of January of $831 billion has brought commercial lending to just slightly below the previous peak of $843 billion during the Great Recession in October 2008. Surprisingly, the commercial loan volume for large banks completely recovered from the effects of the 2007-2009 recession in 220 weeks, while it took more than nine months longer (258 weeks) for commercial lending to completely recover from the effects of the 2001 recession when commercial lending at the end of 2005 finally matched the peak level in early 2001.

2. For all US banks, commercial lending during the first week of January was $1.526 trillion, the highest level of business loans in almost four years, going back to March 2009.  Compared to the peak loan volume of $1.612 trillion in October 2008, business lending in early January was still about 5% lower, but commercial loan volume should surpass the previous peak sometime during the first quarter of this year, given the current pace of business loan growth. Just like the shorter recovery period for large banks, business loans at all US banks should completely recover all of the lost business from the 2007-2009 recession in 230 weeks, which will be about 40 weeks (and 10 months) shorter than the 270 months of recovery time following the 2001 recession.

Bottom Line:  Business lending at US commercial banks is gradually improving, and the volume of commercial and industrial loans at all banks has almost completely recovered from the recessionary effects of the 2007-2009 recession.  As much as we hear about the Great Recession being the worst economic downturn since the Great Depression, the time for commercial lending to recover from this last recession is actually 9-10 months shorter than the recovery time following the 2001 recession.

5 thoughts on “Commercial lending has almost completely recovered from the Great Recession, and faster than after 2001 recession

  1. Bottom Line: Business lending at US commercial banks is gradually improving, and the volume of commercial and industrial loans at all banks has almost completely recovered from the recessionary effects of the 2007-2009 recession. As much as we hear about the Great Recession being the worst economic downturn since the Great Depression, the time for commercial lending to recover from this last recession is actually 9-10 months shorter than the recovery time following the 2001 recession.

    Have you actually looked at what has happened this time around? You have the Fed’s balance sheet explosion and massive liquidity injections that have helped banks get rid of nonperforming assets from their own balance sheets. What we see is evidence of a massive crisis coming for the bond markets, not a sustained recovery.

  2. Economist John Silvia of Wells Fargo :

    “Popular wisdom holds that the economy needs banks to lend before the economy gets going.

    In reality, businesses are cautious about borrowing at the start of the recovery and will invest their own cash first and then borrow at the bank.

    Meanwhile, the bank is also cautious since it probably has some bad loans it wants to work off from the last recession.

    As a result, bank lending is a lagging, not leading, indicator of the recovery.”

    My comment: The recovery has been weak, even with historically low interest rates.

  3. “A regular response from bank bailout apologists back in 2008 was that absent the use of taxpayer money to prop them up, lending would freeze and businesses would collapse. The bailouts were necessary, according to the apologists, because our much-admired commercial sector is and was reliant on bank credit.

    The above arguments were naturally ridiculous. As Thomas Woods noted in his book Meltdown, banks in 2008 only accounted for 20% of corporate lending. Furthermore, going back 100 years to the early part of the 20th century, according to G. Edward Griffin’s very uneven (and often conspiratorial) book The Creature from Jekyll Island, 70%+ of lending to corporations was of the corporation-to-corporation variety.

    … U.S. companies have $1.2 trillion in bank loans outstanding, whereas their European counterparts have over $6 trillion. Contrary to popular opinion, the failure of one or many banks in 2008 would not have led to a collapse in credit for solvent companies.

    To understand why, we must consider what economists refer to as the “substitution effect.” Basically, shortages of anything are often made up for by new market entrants. Banks are no different in this regard.

    Back in the summer of 2010, with its small-business clientele suffering from tighter than normal credit, Walmart’s Sam’s Club subsidiary announced its willingness to provide its customers with $25,000 lines of credit. Walmart has for years tried to get into banking, absurd regulations about new entrants arguably kept it from purchasing some of the insolvent banks in ’08, but even without a banking charter, Walmart was able offer up credit at a time when banks weren’t able to.

    Much the same is occurring now at Amazon.com. Traditional banks remain careful about lending, but Amazon, flush with cash, is eagerly substituting for the banks. Through its Amazon Capital Services subsidiary, Amazon is helping the sellers on its website to access credit that is in short supply at the moment from banks. …” — Forbes

    • if by that you mean “are we in for a nasty recession when the fed starts to hike rates as in 1982″ then yes, could be.

      the current bond market bubble driven by the fed and the heavy leverage in bank bond portfolios is going to make unwinding zirp pretty dangerous.

      even assuming there is a time and a place for a shot of adrenaline to the heart of a patient, that is a short term therapy, not one you adopt for years at a time.

      there is a nasty bond crisis coming.

      the math on what happens to a 20 or 30 to one levered bond portfolio when 5 year rates rise to 2%, much less a more typical 5% is really ugly. the principal hits are going to be devastating.

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