Why the banks aren't lending yet

Last post for Christmas Day.

I've been perplexed as to why banks aren't lending when the federal government is telling them to do more of it with the TARP funds they're getting. Not only are they getting the TARP funds but deposits seem to be as well. The increased interest rate on savings accounts and all the marketing by banks to get more deposits are strong indicators that banks are anxious to increase deposits. Conversely, they've got to be lending money to pay all the interest on deposits. While I understand the nervousness about liquidity/solvency on the bank's part, it seems like they're just pushing their troubles down the road if they just sit on cash.

Anyway, the Wall Street Journal is reporting that, while being publicly told to increase lending, they are being privately told to hold on to their money. Congress and the head regulators are publicly calling for banks to increase lending so the credit markets will loosen up and the economy will start moving in the right direction. At the same time, the "regulators on the street" are telling the banks individually that they need to strengthen their cash positions. One example: regulators are pushing the banks to identify loans that may prove problematic in the future (though still "performing" now") and set aside cash for losses now.

This article sheds some light on the mindset of bankers and why they're acting how they are. Let's get the money moving with increased lending. I'm interested to see whether the Democratic Congress follows through on their push for a TARP-related requirement that banks lend some of the gov't funds they're receiving.

More later....