For months, the lending faucet has been turned off but things seem to be changing. Major banks in the U.S. appear to be allowing loans to trickle forth. Forecasters believe that second quarter earnings reports will reflect a small reversal of the long-term shrinking in bank loan business.
In addition, credit quality is also improving and banks are moving to clear up their legal liabilities regarding mortgage loans.
Despite this good news, there was worry that banks would be severely impacted by the new debit card fee limits put into law. However, the final version of the regulations was not as bad as the initial proposal.
Even so, banks are a long way from being able to breathe a general sigh of relief. Market volatility and weakened fixed-income trading has heavily impacted them.
A growing book of loan business could help address this and low net interest revenue due to continuing low interest rates. Last week, the Federal Reserve reported that leases and loans in bank credit increased approximately one percent annualized during both April and May.
Industrial and commercial loans represented the largest area of growth, more than 11 percent monthly on an annual basis.
Consumer lending is stabilizing but it still lukewarm, increasing only 0.1 percent annualized within the second quarter. Real estate-related lending is still decreasing. Solaris Group co-founder Timothy Ghriskey believes that though the increased amount of bank lending is a positive indicator, the situation will take “years” to right itself.
The Fed surveyed senior bank loan officers during April and found that the larger banks are beginning to loosen standards regarding credit card applications. This could help some people avoid costly payday loans to fund short-term purchases.
Bank of America recently settled with mortgage bond investors, which may incent rival institutions to address their mortgage-related legal liabilities.
