Thursday, January 7, 2010

US Bank Lending Update

The theme for this edition's top 5 graphs is US lending. I sourced some data from the US Federal Reserve on Aggregate lending by US commercial banks over the last 30-odd years, the data is seasonally adjusted, and is originally on a weekly basis. It is useful to look at this information to see how loan growth has unfolded over time; has it changed in composition? has it changed in patterns? how has it tracked recently?

It is particularly interesting to look at this information now for two reasons; 1. The recession we are in/were in (glass half empty/half full) was triggered by a banking crisis, and 2. A sure sign of a strengthening economy will be loan growth (businesses borrowing to invest, and/or consumers feeling more confident/having greater capacity take on new loans. It also says something about availability of credit, business cycles, composition of the economy, and key exposures for the banking sector.

1. US Aggregate Lending Over the Years
This chart shows total lending by US commercial banks over the past 37 years by components. Just by eyeballing this chart you can see that Real Estate loans have taken up a greater proportion of the loan book through time (particularly relative to commercial & industrial).

2. New Loans by Year (Past 20 Years)
Another version of the chart above; this one shows the value of new loans by year for the past 20 years. One of the greatest victims of the fallout has been business lending, while real estate lending has only contracted marginally.

3. Growth in Commercial & Industrial Lending
I decided to put the following three charts in, showing the year on year percentage change in total loans by category because it helps to see broader patterns and is a relative measure so inflation doesn't affect it that much.

For commercial & industrial, one observation is that there has been periods of negative growth in the past, but only this time around has it has pushed outside the usual range on both the up and down side.

4. Growth in Real Estate Lending
Yearly growth in real estate lending went negative for the first time in 37 years in 2009. You can see past cycles in there too - I leave it to you to make some more conclusions here...

5. Growth in Consumer Lending
This one is also interesting as in the past it sort of shows more of a smoother cycle or pattern, but in recent years has become a little more volatile. Also interesting is that the magnitude of loan growth recently is not historically high. Unsurprisingly consumer loan growth has turned negative. It's interesting too that consumer loans tend to get a lot of blame, but make up a lower proportion over time than real estate lending.

So there you have it, a pretty good snapshot of US commercial bank lending over time. This should be useful to add to your thinking about where the economy is now and where it will go from here. The key takeaways are probably 1. Real estate lending has clearly grown to dominate over time and contributed to key vulnerabilities in the banking sector; 2. Business lending suffered the most from the crisis in 2009; and 3. Consumer lending did not expand greater than usual in recent years.

1.-5. US Federal Reserve

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