Banks Boosting Lending

Banks have turned on the spigot, boosting lending at annual rates as high as 8.2% since July, according to Federal Reserve statistics.

Lending had fallen from mid-2008 through the second quarter of 2011, deepening what became the worst recession since the Great Depression. The data seem to allay fears that making banks keep more capital on their books as a cushion against future downturns and loan losses will take away the cash flow businesses need to keep the recovery moving.

“The economy is improving, while smaller banks have positioned themselves to pick up slack left as bigger banks remain cautious,” said Stuart Hoffman, chief economist at Pittsburgh-based PNC Financial. “The most bullish part of the upturn is that it occurred when banks knew the Fed was preparing for last week’s preliminary announcement of tougher new capital standards.”

The sharpest improvement has come in business lending, raising hopes that it can spur increased capital investment, the seed corn of business expansions. Commercial and industrial loans grew at an annualized pace of more than 20% in August and more than 15% in October, the best growth since early 2008. In between, commercial lending dropped 19% in 2009 and an additional 9% last year.

“Even small businesses have seen a difference,” said Bill Dunkelberg, chief economist of the National Federation of Independent Business (NFIB).

In a monthly NFIB survey, only 3% of small-business owners say lack of credit is their most important problem, trailing taxes, regulation and still-sluggish demand. “The last one especially is making entrepreneurs wary of borrowing,” Dunkelberg said. “Only 12% think business will be better in six months than it is now. Small businesses are also missing out on the cheap money that homeowners are seeing, with commercial loan rates above 6%.”