Vijay Yadlapati, NATIONAL ASSOCIATION OF REALTORS® Associate
Commercial Policy Representative
Are Banks Lending?
It’s no secret that credit significantly decreased at the peak of the
financial crisis in 2008. Now that the U.S. economy is showing
some signs of a recovery, has lending also improved? Well, it really
depends on who you ask. Some banks say they have increased
lending, while others say they would like to issue more loans, but
there is littletono demand. On the contrary, borrowers say they
can’t obtain credit due to tighter underwriting standards and addi
tional collateral requirements.
Some financial institutions indeed have increased their com
mercial real estate and small business lending. For example, Wells
Fargo & Co.’s commercial loan portfolio rose 1. 7 percent from
the fourth quarter of 2010. Additionally, First Niagara Financial
Group, a Buffalo, NYbased bank, increased its small business loan
portfolio by more than 40 percent between 2009 and the end of
2010. However, these are two of a relatively small number of banks
that expanded their lending portfolios.
Banks that tout their recent lending increases may be present
ing a distorted picture. Although their commercial real estate and/or
small business lending portfolios may have increased in size, they
often fail to mention how this increase was achieved. For example,
some financial institutions have been gobbling up assets from the
365plus financial institutions that have failed since the financial
crisis. Others have poached customers from competitor banks,
meaning that they have taken control of an existing loan, but have
not issued a new loan or raised the loan size for the borrower.
According to the U.S. Small Business Administration, small busi
ness lending actually fell 6. 2 percent to $652.2 billion in 2010 from
a year earlier. Also, a Federal Reserve report indicates that commer
cial real estate loans have fallen from $1.73 trillion to $1.46 trillion
since December 2008. So why is there such a disparity between
bank and federal government loan data? This is primarily due to the
different ways banks and government agencies calculate lending sta
tistics. When financial institutions report a rise in their lending activi
ties, they often refer to new or renewed loans in a particular period of
time — usually the most recent quarter. Conversely, most government
lending data includes the total outstanding credit or what is owed to a
bank, regardless of whether it is a new or existing loan. This balance
drops as loans are repaid, but will rise as new loans are made.
At the peak of the financial crisis, most financial institutions were
not issuing new loans, and outstanding balances fell significantly as
loans were amortized or written down, according to the Wall Street
Journal. While banks such as Wells Fargo have slightly increased
their lending, many financial institutions are currently not issuing
a sufficient amount of loans to offset their diminishing balances.