Bank Loans Continue To Fall Despite Increase In Assets

While bank deposits continue to climb, lending in the U.S. by financial institutions (FIs) is lower than ever, as banks remain cautious about extending loans over fears of defaults, Bloomberg reported Monday (March 22), citing data from the Federal Reserve.

Total loans and leases dropped to 62.8 percent of total bank deposits in the week ending March 10, even as total assets rose 0.7 percent to $21 trillion, according to Bloomberg.

Consumers have notably been storing away funds amid the pandemic — stoked by fears of economic instability as well as lockdowns that left few options for much spending. Goldman Sachs, for one, reported in the fall that Marcus consumer deposits increased by $4 billion in the third quarter.

“Lenders use deposits to fund new credit for their customers,” Bloomberg reported. It defines banks’ capacity to grant new loans.

But banks tightened their lending standards and terms for consumer, commercial and industrial loans many months ago amid the worsening economic conditions brought on by the pandemic, despite increased saving amid consumers.

Both home loans and commercial real estate loans hit new “record lows,” according to Bloomberg. Loans and leases fell to 49.7 percent of total assets, “the lowest reading in data going back to 1973.”

But there has also been a decrease in loan demand, PYMNTS reported, in sectors that found less need for financing inventory, mergers and acquisitions, accounts receivable and equipment.

Total assets rose at both small and large banks, according to the Federal Reserve data. Total assets went up 0.8 percent to $12.17 trillion at the 25 largest banks in the country, per Bloomberg. And at smaller and foreign banks, total assets similarly rose 0.6 percent to $8.85 trillion.