24 October 2012
We have to ask if consumer deleveraging is over? Maybe it is, for now. But what does the action in commercial and industrial loans tell us? We get some very good private research from Leto Market Insight - here is an excerpt from a commentary last week:
Total outstanding C&I loans by domestically chartered commercial banks today are $1.21 trillion or 5% below the pre-October 2008 crisis level. Of these loans, 4,455 small banks extended $418 billion (34% of all C&I loans), even though these banks account for only 16% of all banking assets. The large banks extended the remaining $793 billion (66% of C&I loans) although they account for 84% of all banking assets.
The Federal Reserve designates as "large banks" those that have over $300 million in assets, and there are 1,700 such banks. Fed reports also show that the "top 100" of these banks account for all the C&I loans outstanding in all "large banks," suggesting that the remaining 1,600 US "large banks" with assets ranging from $300 million to $6.7 billion are essentially out of the C&I business!
Some might say the following chart means good things in that C&I loans are actually trending higher. But the dynamic described in the above research is not healthy for the system. Will it matter? It certainly will if the Too-Big-to-Fail banks aren't nurtured ad infinitum. But if they are, then confidence in an unsustainable system could be restored in the coming months.
No new recommendations or adjustments at this time.