Lending Down at Bailed-Out Banks

Federal regulators completed unprecedented ""stress tests"":http://dsnews.comindex.php/home/news_story/2951 of the largest banks' balance sheets last month, and found that 10 of the 19 institutions screened had enough capital on hand to not only sustain lending in the current environment, but could continue lending even if economic conditions worsen. Based largely on these conclusions and investors' seemingly renewed confidence in the nation's banking system, regulatory supervisors have given 10 major lenders the go-ahead to ""repay the capital injections"":http://dsnews.comindex.php/home/news_story/3074 they received from the government, which were intended to improve market liquidity and loosen the banks' tight grip on credit.
However, according to a ""report"":http://www.financialstability.gov/impact/bankSurveyRightnavSum.htm released last week by the Treasury Department, lending has actually declined at 500 of the 600-plus banks that have received federal bailout money. The report shows that outstanding loans for these banks totaled $5.23 trillion in March, down 0.8 percent from $5.28 trillion in at the end of February.
The drop in loans outstanding was a bit more pronounced at the ""21 largest banks"":http://www.financialstability.gov/docs/surveys/SnapshotAnalysisMarch2009.pdf to receive taxpayer dollars. The Treasury said the aggregate loan balances at these leading institutions slipped one percent to an average of $4.38 trillion for March, down from $4.42 trillion in February. The Treasury said, though, that this decline was largely due to borrowers paying down outstanding debt.
In spite of the declines in loans held on these banks’ balance sheets, originations of new loans accelerated, the report said. The nation's top 21 banks reported an increase in total new lending of 27 percent from February to March (about $63 billion). However, the Treasury Department noted that increases in first lien mortgages and other consumer loans was smaller than in February.
Gary Koster, head of the Real Estate Fund Services Practice at ""Ernst & Young LLP"":http://www.ey.com, said, ""It seems that, despite the widespread infusions of capital into various lending institutions through economic stimulus programs, it appears there is still very little, if any, lending taking place in the real estate industry right now.""