Local, national bank lending not frozen

Most of the official and news reports about frozen lending and the banks’ use of federal bailout funds is misleading, according to Treasury Strategies, a leading Treasury consulting whose clients include Tyson Foods, Pepsico and AT&T.

The Chicago-based company sent a letter Monday (Feb. 2) to Members of Congress explaining that “The Fed’s own statistics show solid loan growth” in most of the key loan categories.

“Despite numerous anecdotes of borrowers facing difficulty, this evidence clearly shows banks ARE lending to businesses and consumers,” Treasury Strategies noted.

GROWTH IN FORT SMITH
John Womack, president and CEO of the Fort Smith-River Valley region for Arvest Bank, said lending activity in the Fort Smith area is doing well, especially mortgage lending.

Arvest’s Fort Smith region generated more than $115 million in 2008 mortgage lending, more than 10 percent of the approximately $1 billion in mortgage loans Arvest made in its 16 market areas.

“Fort Smith was the second top (mortgage) producer in the 16 areas last year,” Womack said.

And on the mortgage side, Arvest continues to see brisk activity. Womack said systemwide the bank took $300 million in applications in December and $360 million in January. Previous highs were around $200 million, Womack explained.

“Now, not all of that (application amount) will be accepted, but that tells you what the low interest rates are doing,” he said.

Womack said most banks operating in the Fort Smith/Van Buren area are doing well with mortgage loans.

However, commercial and consumer lending is “definitely slowing down,” he said. This is because people have too much debt to qualify under stricter underwriting standards, or simply are not applying for loans.

“I think that has a lot to do with it,” Womack responded when asked if the constant media reports about the economy are causing people to be cautious. “But I think a lot of people really are concerned about their jobs, or about how long we will be (in a recession) and they are thinking twice about getting that boat or getting that car.”

LETTER TO CONGRESS
Treasury Strategies said claims that bank lending is frozen or that banks are sitting on their bailout money or that banks refuse to loan are often wrong or full of half-truths.

The company’s letter cited several factors to prove its case that bank lending is not in crisis mode.

Lending by domestic commercial banks, now at nearly $7.2 trillion, grew 5.3% during 2008 and at a 5.5% annualized rate in the fourth quarter.

Bank lending growth is broad based. Commercial, consumer and real estate loan totals all grew during the fourth quarter and during 2008 as a whole.  Commercial loans grew by 2.4% during the fourth quarter. Consumer loans and real estate loans grew by 3.4% and 3.0% respectively during the quarter.

Recent regulatory change has created disincentives to lending, yet lending continues to grow. For example, the Fed’s policy of paying interest on excess bank reserves actually pays banks to NOT lend money to consumers and businesses.

Businesses and consumers are de-leveraging, thereby decreasing their borrowing demand, yet bank lending continues to grow. Thus bank lending as a share of total lending is increasing.

“Therefore, additional regulation or legislation around bank lending could be misguided and disruptive at best,” officials at Treasury Strategies concluded. “At worst, it risks distorting the markets and possibly leads to a round of imprudent lending, thereby prolonging the downturn. With loan demand declining as a result of de-leveraging, there is a serious risk that mandated lending would result in bad loans being made to unqualified borrowers.”