The Corner

Bank Lending Keeps Dropping

The Wall Street Journal reports today that the TARP money appears to be for bank bondholders rather than bank lending:

Lending at the biggest U.S. banks has fallen more sharply than realized, despite government efforts to pump billions of dollars into the financial sector.

According to a Wall Street Journal analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program.

And one of the readers makes the following comments:

The authors write that bank lending by TARP recipients fell by 4.7% in February over January. By contrast, according to the Federal Reserve, total lending by all domestic US commercial banks rose by .2% in February. Lending by large commercial banks (including TARP recipients) fell by .3% and lending by small domestic commercial banks rose by .9%.

This difference in performance seems to support the view that TARP is mainly keeping weak banks from failing and that TARP funds are mainly used by these banks to maintain liquidity. They do not seem to support the view that TARP is leading the way in restoring bank lending.

For more details, read another good Wall Street Journal article here.

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