Weekly Market Insights

Outstanding Commercial & Industrial Loans

Tuesday, January 26, 2010

The value of commercial and industrial loans, i.e. business loans, on the balance sheets of U.S. commercial banks has declined consistently since late 2008. This seems to corroborate the view that banks aren’t lending. Indeed, a separate survey of banks conducted quarterly by the Federal Reserve reveals that banks have been tightening C&I loan standards or increasing spreads since late 2007. But the survey also reveals that demand for C&I loans has weakened consistently since the middle of 2006. The same trend is evident in commercial real estate loans, with banks reporting tighter standards and declining demand for the past three years. The government debt and excess liquidity in the financial system that has built up since the recession began is like dry tinder. An economic recovery will bring stronger private sector loan demand and issuance, which could begin to compete with public borrowing needs and thereby ignite inflation.

Source: Federal Reserve, Grubb & Ellis 

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