Why banks aren't lending

[Owlet]

"Remember the old story about commercial banks? Commercial banks only lend to people who don’t need to borrow.

Well, that seems to be the “truth” about bank lending now. The story going around is that the larger banks have increased their business lending, but the lending is really only going to those institutions that have a lot of cash on hand. Otherwise, the commercial banks will sit on their excess reserves.

This also seems to be the story in Europe: commercial banks are just not lending anywhere.

And, the relevant question is not 'Why aren’t commercial banks lending?' The relevant question is 'Why should commercial banks be lending at this time?'"

Good article on this here

[LiberalEsto]

1. One reason they're not lending

is that they won't make enough interest on the loans, given that the rates are so low.

[abelenkpe]

2. Cause B or A is threatening to go belly up?

[valerief]

3. Why isn't the govt lending? nt

[truedelphi]

7. The government through the mechanisms utilized by the Fed Reserve

Has been lending - but only to the top Financial Firms.

Trillions of dollars, which get paid back by those firms who are offering up investment papers of dubious value. We gave them US dollars; they give us crap.

[CJCRANE]

4. Because they got paid.

Think about it.

Traditionally loans are paid back slowly...

But when the banks crashed the economy all the bad debts were suddenly due in full...so the government stepped in and paid them off with taxpayers' money.

Now the banks (and corporations) are sitting pretty...and the government is in (even more) debt.

(I'm no economist but that's my theory).

[truedelphi]

5. It sounds rather true - doesn't it?

And I read about two years ago, that bank mergers were the new "bubble."

Not a bubble that any one of the Middle Class could participate in.

But one the government helps with - a lot!

For instance, the monies in tax rebates offered by the government to Wells Fargo paid for their acquisition of Wachovia!

[dixiegrrrrl]

6. Even better, did you know that FDIC pays acquiring banks the FULL amount of bad debts

of the acquired bank?
In short, FDIC "bribes" an acquiring bank to take over a failed bank, by subsidizing the full amounts of what would be "failed loans" of the bad bank.
Which is why FDIC is broke.
FDIC does not insure our deposits so much as it insures the owners of the failed banks.

[Warpy]

8. Banks are also leery of being stuck with a lot of 4% paper

when the Fed realizes the only way out of a liquidity trap is the counter intuitive one, to raise interest rates. While that 4% paper is giving them a decent return on essentially free money from the Fed and their depositors, it's not going to be adequate when the Fed rate goes back up to 4% and they're writing new paper at 8%.

Eventually those interest rates will rise, probably when the US starts having trouble selling its debt overseas.

[Name removed]

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