Straight Talk: Seeing the whole future

The banks aren't lending! When the FDIC noted that second quarter lending had decreased by 1.4 percent, or $107 billion, some sectarian pundits reported "the banks aren't lending." The implication is that bankers aren't doing their job.. Why is it that when loan volume declines, everyone assumes bankers are refusing to make loans? Why doesn't anyone assume that loan demand is off? When gasoline sales decline, no one says "the gas stations aren't selling;" they say "people are buying less gasoline." So why don't they apply the same language when it comes to credit? They should say: "People are borrowing less.". Statistics describing lending volume alone don't tell us much. We can only assess bank responsiveness if we know something about the level of demand. Then we can compare demand to volume and determine whether banks are fulfilling most of the loan demand or only a small portion of it. That kind of information would tell us whether banks are lending freely or frugally.. When people say the banks aren't lending, they think they are commenting on the banks, but I would bet that more often it is a comment on the borrowers. If banks aren't lending, it's because people aren't borrowing. Remember, banks make money when they lend. Incentives exist to encourage lending. It makes no sense for banks to turn away creditworthy borrowers. I would contend that loan volume almost always reflects loan demand, so a statement about anemic loan volume is not so much a statement about banks as it is about the broader economy.. Regulators, of course, throw a monkey wrench into my analysis. Regulators may discourage lending, particularly in areas where a bank builds concentrations. But there again, pundits who complain that banks aren't lending still have got it wrong. The story is not the banks, but the regulators. Regulatory initiatives can do as much to affect the economy as bank trends, and I would argue that in the Dodd-Frank era regulatory influence will only grow.. So how do we help the media get it right? How can we get loan demand information that puts loan volume statistics into perspective? This might be something for the U.S. Commerce Department to take on. Comprehensive business surveys about credit demand could produce contextual information for FDIC statistics. It would be even more helpful if such information were released at the same time the FDIC issued its quarterly industry statistical reports. Loan volume statistics only give us half the picture; loan demand statistics would help us see the whole picture.