Earlier this year, I suggested putting an eye on the financials. At the time, I said as quantitative easing eased, and the Dodd-Frank financial reforms phased in, banks would be forced to lend in order to keep their stock prices up. Simply, as the doors to quick and risky trading profits closed, they would have to turn to making loans for profit. Well, their books are flush with cash from government coffers and, since January, a steady trickle of money has flowed into the commercial/industrial (C&I) sector. Well, it appears the trickle is becoming a flow.
As reported in the Federal Reserve Senior Loan Officer Opinion Survey, banks continued to ease standards and terms for C&I loans, and no bank reported tightening standards. The majority of respondents that had eased standards and terms on C&I loans cited increased competition from other banks and nonbank lenders as the most important reason for the easing. Some banks that had eased standards and terms also pointed to a more favorable or less uncertain economic outlook.
Usually, I don’t use charts here, but this one so clearly demonstrates my point …
Although troubled at the moment, the financial sector will improve as capital flows out to the commercial industrial sector. The ramifications of this are clear – businesses borrow money to expand, and as the flow of money into the commercial/industrial sector increases, the U.S. economy will expand.
Of course, this flies directly in the face of the breathless media and the doomsayers, but it is hard to argue with a survey of bankers who point to increased competition and “to a more favorable or less uncertain economic outlook” as the reasons for easing lending standards and increasing loans to the commercial/industrial sector. Now, if the price of energy keeps dropping and businesses begin seriously hiring to keep productivity up, the tone and tenor of the media will change, and this will make a big difference.
Trade in the day – Invest in your life …
