US Banks lending falls at record pace

While US officials have been lavishly praising the nation's recovery plans, new evidence says that last year, US banks posted their sharpest decline in lending since 1942, suggesting that the industry's continued slide will make it harder for the economy to truly recover.

According to a quarterly report by the Federal Deposit Insurance Corp. (FDIC), the issue of recession is far from over. The report argues that, while top-tier banks are recovering well, the rest of the industry remains in limbo. In fact, many banks that are fighting for survival are (understandably) becoming more and more wary about extending loans, causing great problems for businesses and consumers who rely on this cashflow.

Shiela Bair, Chairman of the FDIC, said told the Wall Street Journal (WSJ) that "banks are just bumping along the bottom of the credit cycle", highlighting that the number of bank of failures in 2010 now looks likely to eclipse the 140 that were recorded in 2009.

Failing

In fact, according to the report, the number of US banks at risk of failing has now hit a 16-year high at 702, with more than five percent of all loans at least three months past due - which is the highest level recorded in the 26 years the data has been collected.

What's more, the struggling banking industry remains a problem for policy makers eager for banks to lend again. Lawmakers on Capitol Hill and administration officials have pushed banks to lend, particularly in light of the billions in taxpayer aid injected into the financial industry over the past two years.

Ultimately, while it remains unclear whether the sharp decline stems from the fact that banks are tightening standards and a fear of lending or from weak demand from potential borrowers, the reality is that the declines need to be addressed by the industry - particularly if recovery is ever likely to really begin.

Matthew Buttell

Matt Buttell graduated from Bath Spa University in 2006. Since then he has written for several publications, before moving to the web. He now writes solely for the internet, continuing to cover key business issues while managing his own personal blog.

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