LAKE BLUFF, Ill.--(EON: Enhanced Online News)--While depositories’ balance sheets are much stronger, the “clean up” has done little to grow the economy especially for small business needs and job creation.
“Main Street financial institutions lend to Main Street businesses. The 27 Million small businesses, especially those with less than 50 employees that provide over 65% of the new jobs, cannot obtain loans to advance their business”
Loans at financial institutions overall increased only 0.9% in the first half of 2013 from the end of 2012. However, Main Street institutions, community banks less than $1 Billion in assets and credit unions less than $500 Million, actually reduced loans according to the latest quarterly Stress Test Study of all financial institutions by Moebs Services, an economic research firm, located in Lake Bluff, Illinois.
“Main Street financial institutions lend to Main Street businesses. The 27 Million small businesses, especially those with less than 50 employees that provide over 65% of the new jobs, cannot obtain loans to advance their business,” states Michael Moebs, economist and CEO of Moebs Services and author of the study. “At the end of 2007, 8 months before the mortgage bubble burst and the Great Recession started, total loans were $8,346.8 Billion or 2.4% more than at the end of the second quarter of this year. Today the stock market is doing well, some big businesses are doing well, but Main Street businesses, including community banks, thrifts and credit unions, have yet to come back.
|Loans at Financial Institutions|
By Asset Sizes
|Banks >$50 Billion||$4,931.4||$4,888.2||0.9%|
|Banks >$25 Billion||$ 401.5||$ 399.8||0.4%|
|Banks >$5 Billion||$ 829.5||$ 820.5||1.1%|
|Banks >$1 Billion||$ 606.8||$ 603.4||0.6%|
|Banks >$500 Million||$ 297.2||$ 297.9||-0.2%|
|Banks >$100 Million||$ 482.5||$ 484.4||-0.4%|
|Banks <$100 Million||$ 68.9||$ 70.7||-2.5%|
|Credit Unions >$5 Billion||$ 120.5||$ 112.5||7.1%|
|Credit Unions >$1 Billion||$ 205.8||$ 197.1||4.4%|
|Credit Unions >$500 Million||$ 93.4||$ 91.3||2.3%|
|Credit Unions >$100 Million||$ 134.4||$ 134.6||-0.1%|
|Credit Unions <$100 Million||$ 59.4||$ 61.5||-3.4%|
|Total All Depositories||$8,231.3||$8,161.9||0.9%|
Sources: Banks (Including Thrifts) & Credit Unions
Call Reports and Moebs Services Analyses
Balance Sheets Reflect Restructuring
“Since 2007, all sizes of depositories have focused on cleaning up their balance sheets at the direction of regulators by rebuilding capital, avoiding risk, and absorbing deposit growth,” according to Moebs. Deposits to assets were 66.6% at June, 2013 versus 54.8% at year end 2007. Debt has shrunk from 21.0% of assets or more than $2 of debt to $1 of capital in 2007, to 10.4% and only 93¢ of debt to $1 of capital today.
The big deposit growth has been handled by using deposit and transaction resources more efficiently. Expenses, even with strong deposit growth, are the same 2.84% to assets now as in 2007.
Overall assets increased from $13.8 Trillion at the end of 2007 to $15.5 Trillion at June, 2013. However, asset growth has not come from loans, but from investments, which grew from 20.2% of assets in 2007 to 31.6% today. The result is stronger balance sheets with much less risk but much less credit extended.
Economic Growth Requires More Lending
If growth in Gross Domestic Product had been 2% a year since the peak of loans in 2007, the level of loans would be $9.3 Trillion according to the Moebs Stress Test analysis. Current levels are more than $1 Trillion short of normal growth.
Parallels to 1930s
“The study points out a parallel to the 1930s, when the Fed purchased securities and flooded the banks with money, but the banks did not lend at that time. In the 1930’s banks rebuilt capital and grew with deposits as is happening today,” continues Moebs. “Regulators stress ‘capital adequacy’ along with ‘diversification’ and depositories have responded by reducing debt and moving assets from loans to investments. While this helps the regulators with depository balance sheets, the economy, small businesses, and financial institutions themselves would be better served if banks, thrifts and credit unions now concentrate on making loans.”
About Moebs Services
Since 1983, Moebs Services collects statistically significant, primary empirical data about financial institutions’ services, pricing, operating expenses and financial condition and analyzing the data in a counter intuitive manner, which provides solutions that make sense. For more info please visit www.moebs.com