Some portion of this credit growth is due to companies having to rely more on bank financing, as commercial paper markets have seized up. And there are signs firms are preemptively drawing down their lines of credit in order to maintain their own liquidity, explained Leggett
See Jim Bianco, president of Bianco Research in video at left on the consequence of a banking system that is too small given the size of the economy.
In fact, Leggett said he recently had an unsolicited 55 percent increase in his credit line. “I just got it in the mail, they were going through their periodic review and they said ‘Hey, you are a good customer,’ " he said.
Auto Loans Tighten
But there are also clear signs of tightening credit, especially as loan delinquencies rise.
Take auto loans. Lending losses in this business line doubled in 2007 over the previous year, according to a Consumer Banking Association report.
Even though repossession rates are still relatively low—just over 2 percent—lenders have moved to stem those losses by demanding higher down payments and higher credit scores. Less applications are approved and loans have quicker repayments windows.
It will be tougher to get credit in the months ahead. So what should consumers do?
These efforts are already reflected in auto sales, which plunged 25 percent from the beginning of the year on an annualized basis—from 16.5 million to 12.8 million.