Wall St To DC: What We Have Here Is A Failure To Communicate

It's a little frustrating to listen to Congresspeople grill the bank CEOs with variations on the question, "What did you do with all the money we gave you?"

While the CEOs went to great lengths to emphasize that they HAVE continued to lend, no one seems to believe them.

The correct answer to the question, "What did you do with all the money we gave you?" is, "We used it to survive. We used it to shore up our capital position. We are still making loans, but we can't dramatically increase lending until our capital position improves. We cannot lend an infinite amount of money against a shrinking capital base. What part of this don't you understand?"

The banking industry is now going on the offensive. This morning, the American Banking Association released a paper, "The Impact of the Capital Purchase Program and Bank Lending," where they note that while typically loan growth shrinks during a recession, "during the current recession business loans have expanded by 12 percent and consumer loans by 9 percent."

In addition, The ABA notes that:

1) 30 years ago, banks provided 60 percent of all credit;

2) Today, traditional bank lending provides less than 30 percent.

Jamie Dimon correctly noted that it is the non-bank industries that have withdrawn from lending: the mortgage companies, car financing companies, and leasing companies.

In addition, demand for loans are way down.

Put it all together, the ABA says "This combination of increased bank lending in 2008 at the same time that loan demand was shrinking underscores the increased prominence of banks in meeting the credit needs of borrowers."

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