Is US bank lending starting to recover?
Simon Ward
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The stock of commercial and industrial (C&I) loans advanced by US commercial banks shrank by 18% in the year to July. The pace of decline, however, has slowed sharply, with August figures due on Friday likely to show a three-month change of close to zero – see first chart. (The chart uses a new Federal Reserve dataset that adjusts for series breaks.)
In the Fed's July survey of senior bank loan officers, the net percentages reporting stronger demand for C&I loans from larger and small firms rose to +2% and -4% respectively. An average of the two series has been a leading indicator of C&I lending and the current reading is consistent with a return to expansion – second chart.
C&I lending accounts for only 18% of US banks' total "loans and leases" but they usually move together, with total lending also declining more slowly recently – third chart. The Fed survey also reported notable improvements in loan officers' assessment of demand for mortgages and consumer credit. The officials, meanwhile, signalled looser lending standards for C&I loans and prime residential mortgages and increased willingness to advance consumer installment credit – fourth chart.
A return to credit expansion, if confirmed, would increase confidence in the sustainability of the recovery, in part because of its likely positive impact on monetary trends.
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