The chart below of the number of FDIC-insured “problem” institutions (courtesy of Clusterstock – Business Insider) clearly shows the industry still has a long convalescence period ahead. A new high was made in Q2 and a reversal obviously needs to be established before one can talk of a proper recovery in the industry.

Source: Clusterstock – Business Insider, August 31, 2010.

Despite the interbank lending rates having normalized, banks are still significantly curtailing the amount of money they are actually lending. The US Depository Institutions Aggregate Excess Reserves remain at lofty levels far in excess of the amount banks need to keep on deposit to meet their reserve requirements (see chart below). Although this measure has started turning down, the level indicates that the balance sheets of banks remain under pressure, especially in view of the fact that the value of some assets is not known. A definite peak in the Excess Reserves graph should coincide with better tidings for the credit machinery and economic growth.

Source: Fullermoney

Lastly, in the video clip below Fortune’s Colin Barr also discusses the reluctance of banks to lend.

Source: CNN Money, August 31, 2010.

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