Friday, April 4, 2014

USA and EU: Banks Just Not Lending

by Pivotfarm

So, they might be on the opposite side of the Atlantic Ocean, but the Europeans and the Americans have one thing very much in common. Their banks just aren’t lending to private individuals and let alone businesses. “Why not?” I hear you ask! It’s simple: the banks have better things to do with the Quantitative Easing that they have kindly agreed to take on; a lot better than giving it to the businesses. Heaven forbid, they might actually do something and earn a profit from it. There’s, it seems, a finite amount of profit in this world that somebody seems to have decreed as the maximum limit. The banks don’t want to let their share of the corporate finance pie go. That’s why. It’s not difficult to grasp; it’s not convoluted and painstakingly hard to get your hear around. The banks just don’t want to in a sultry sulky way, sitting in their corner, playing on their own.


The banks are hoarding in the EU today and even more so ahead of the European Central Bank's ‘Stress Tests’. The Stress Test, or the European Central Bank’s Asset Quality Review is probably the biggest event that is going to happen all year long for Mario Draghi. Consumer spending and small and medium-size enterprises have financing that are loan-dependent in the European Union and the Asset Quality Review will (and already is) inevitably having an impact upon that.

Eurozone economic growth has current estimates for next year standing at 1.8%. But, what Draghi wants is to see the opening up of alternative sources of lending to SMEs and private consumers so that the onus doesn’t lie entirely on the banks. But the AQR is based upon figures at the end of 2013 and it was thought that to look good banks would hold back on loans at that time. If the AQR were entirely at fault, then that would have righted itself in the early part of 2014. This is clearly not the case and we are still seeing a fall in the number of loans being made.

The Eurozone lending to the private sector fell yet again in February. Perhaps the banks are partly to blame but who would take out a loan today given the economic situation that the messy EU has gotten itself into? The private sector has got cold feet. Loans to the private sector fell in the most recent data released by 2.2% year-on-year in February. That was after a 2.3% decline in January. The ECB has fixed the level of 4.5%, but it is well below what they would like.


Would you believe it if you were told that the banks are now lending as much as they were in 2007? Would you see the knock-on effects in the USA of such fervent business activity, buzzing around you? But, not only is the Federal Reserve now a little worried that the banks are lending as much as in 2007 (although, please show us the effects if this is true), they still have more cash deposits and reserves than ever. The current dollar amount in banks stands at $10 trillion, which is $2.5 trillion more than being lent out ($7.5 trillion). Back in 2008, with the financial crisis there was a fall-short of $205 billion in favor of loans (exceeding deposits). Corporate borrowing currently stands at $1.7 trillion. February 2013 saw the biggest increase since 2008 in commercial and industrial loans (amounting to $38.3 billion). The banks are still hoarding money from the people that certainly need it in the US economy.

The banks might be seemingly lending, but they are not lending enough and certainly not to private individuals or SMEs. The only ones they are deciding to lend to are the big fish, the blue-chip companies and the industrials, the ones that are benefitting already from the Federal Reserve’s Quantitative-Easing money on the stock market.

The etymology of ‘to lend’ is an old Norse word that meant ‘to give as a gift’ or ‘to let have’. I can’t see anyone letting anyone outside of the banking circles have anything these days. Well, just like the Norse Viking settlers in Greenland, gorging themselves on seals and disappearing from the face of the Earth, the banks too will be in for a vanishing trick one day, because they will have been making pigs of themselves and gluttonously stuffing their bellies with a great big stash of Federal Reserve cash. Let’s hope that 500 years after their disappearance someone digs up something from an excavation that leads them to the real reason why the banksters vanished from the planet. No wonder the economy looks as if it has a face like a smacked butt these days, is it really?

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