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Lending pace reaches pre-recession levels

April 5, 2014
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Banks are lending at a pace dangerously close to that of pre-recession 2007, according to Bloomberg’s Sridhar Natarajan. So why, after all the warning signs from the Federal Reserve, are banks taking on more risk? The answer: a record $10 trillion in cash deposits in U.S. banks.

Even with loan assets amounting to $7.5 trillion, banks still have an additional $2.5 trillion in cash assets to back additional loan growth. Compare this to the last time lending reached this level (leading into the 2008 recession), when cash assets were exceeded by lending commitments by $205 billion.

On top of record-setting levels of cash deposits, there are several other reasons why banks are likely to maintain their current pace of lending:

• Promising economic growth:

• Consumer spending is driving an annualized 2.6 percent increase of U.S. GDP from October to December, according to the Commerce Department.

Unemployment claims are the lowest they’ve been since November, dropping 10,000 to 311,000 (as of March 22nd).

• More reliable borrowers:

• Delinquency rates on Commercial & Industrial (C&I) loans are at an all-time low of 0.87 percent, according to the Fed’s Q4 2013 data (the lowest this rate has been in nearly 30 years of data).

To learn more about what to expect in the U.S. lending environment this year, download the Lending Outlook for 2014 whitepaper.

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