Loans Shrink as Percentage of Banks’ assets

I recently came across this sobering news regarding loan growth relative to rising deposit balances at US commercial banks.  You see the biggest problem in the US Banking system (besides moving to a regulated utility where the Government determines the leverage banks can have and becoming the enforcement cop for the U.S. Government around money laundering) is too many deposits.  Deposits cost the bank money (they must pay the Federal Deposit Insurance Corp an insurance premium to cover their deposits and it costs money to raise them).  If there is no loan growth, or if credit policies are tightened, this hurts bank profits.

Sober Look, a great site around data analysis, produced some graphs regarding the situation. Their latest figures suggest that loans are increasing at less than 2%, while deposits continue to grow at 6-7% per year.  Loan growth rate in the US, while better than in the Eurozone, remains on a downward path.  Their second graph is ever more sobering (see below).  It shows loans as a percentage of banks’ total assets are at 52.2% – the lowest level on record.

Loan-to-deposit ratio in the banking system hit a 35-year low recently.

Loan to deposit ratio

In essence, there are significant structural problems in our banking system, and whether the charts above are related to weak loan demand (high degree of uncertainty does not bode well for investment) or tight bank credit policies (just not lending), or both, it does not bode well for economic growth.   This may help explain why many in the Private Equity and vendor communities believe there are opportunities to develop finance options, especially for small enterprises.  Most of these developments continue to be around the post shipment, submitted invoice world.

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