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Lending by Bailout Banks Fell in April, Treasury Says

The Treasury Department says the value of loans held by the 21 largest institutions getting federal bailout support fell in April, the fifth decline in six months.

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The department's monthly report of lending activity says that average loan balances at the 21 institutions totaled $4.34 trillion in April, down 0.8 percent from March.

Treasury has been issuing reports to track lending activity at banks that received capital from the $700 billion bailout fund.

While activity has fallen in five of the past six months, the administration says the declines would have been even more severe without the government support.

The survey's consumer lending category—total outstanding loans in first lien mortgages, home equity lines of credit, credit card loans and the category that is other consumer loans—dropped 1 percent in April.

"Households are facing growing pressures from a weakening labor market and further declines in their wealth," the report said. "In this context, consumers focused on paying down debt, driving the decreases in outstanding loan balances held by banks."

Still, the report noted that job losses in April and May averaged 425,000, compared with an average of nearly 700,000 during the first three months of this year. Single-family housing construction and home sales also have stabilized since January.

But despite various signs of improvement, other indicators showed worsening of conditions, including home foreclosures and delinquencies setting another record in the first quarter with more than 9 percent of all mortgages at least 30 days delinquent.

Ten of the nation's biggest financial companies—including JPMorgan Chase , American Express and Goldman Sachs— last week got the go-ahead to return $68 billion in federal bailout money, a development viewed as evidence that the financial sector was beginning to stabilize.

The report said the large banks also reported that demand by businesses for commercial and industrial loans was well below normal levels amid the recession.

"As firms continue to downsize, cut costs and reduce inventories, banks anticipate that lower levels of demand for C&I loans will persist through the second quarter of 2009," Treasury said.

The survey also found poor market conditions and general caution by businesses in the area of commercial real estate loans.

The government has argued that the $700 billion financial rescue fund Congress created last October was needed to bolster banks' tattered balance sheets and encourage them to boost lending to consumers and businesses.

Critics, however, have argued that the government has not done enough to ensure that the money banks were receiving was being used to boost loan activity.

The big banks included in Treasury's monthly loan survey account for more than half of the net loans outstanding at financial institutions. The government has provided nearly $200 billion to support 623 banks in 48 states, Puerto Rico and the District of Columbia since the program began.