Big Banks shrink lending

Even though the economy has been recovering at a snail-like pace, there is a possibility that the recovery may be fizziling out.  One of the main indicators of economic health is bank lending, it has been rising for most of last year but has dropped in the first three months of 2012.  The big four, JP Morgan Chase, Wells Fargo, Bank of America and Citigroup have been lending a total of $24 billion through January-March 2012, which is down $10 billion from the mark in 2011. The reason why a decrease in bank lending is problematic is that when banks cut lending, it makes it harder for small businesses to obtain capital that is needed for expansion or formation.  Some other theories on why the drop in lending is bad is based on the demand theory that fewer loans are a result of businesses and individuals choosing not to borrow based on fears on the economy.  However the latter seems unlikely because throughout the first three months of 2012, the U.S. economy has been growing with only March showing disappointing numbers.

The only type of loans that increased for big banks is mortgage lending, however most of those were taken out to refinance a home, not purchase a new one.  However, just because the big banks have slowed down lending doesn’t mean that all banks in the U.S. have shrunk lending too, bank lending in general is still going up with Credit Unions increasing popularity.  The increasing popularity of Credit Unions is good for individuals but for small business looking for capital to form or expand their business, it still is difficult to find Credit Unions willing to loan money to them.