Banks Need Just One Thing to Spur Lending: Borrowers

When will people, especially politicians understand that giving another money is not creating demand.  Just because someone is able to receive a loan doesn't mean they should.  Think of the housing bubble.  And just because there are fewer loans being made doesn't mean that banks are stifling growth.

If you think in simple terms of supply and demand, the demand being consumers doesn't match the supply when it comes to lending.  Most statistics say that Americans are being diligent about getting their fiscal house in order and reducing debt, not taking on new debt.  About the only real growth in debt has been in student loans which is cause for concern.

From the WSJ

• While overall loans and leases at commercial banks have shown positive year-over-year growth for the past four quarters, they still are 3% lower than a peak of $7.32 trillion in October 2008. That's even more striking considering the big shrinkage of credit outside of banks during that time.
• Banks contend they would gladly lend more but that demand just isn't there. Falling levels of interest income at many banks, along with soggy share prices, suggest their argument is more than just bluster. After all, they would be lending if they thought it would raise lackluster profits. Given this, it isn't clear how much benefit will result from further attempts to juice the supply of lending.
• But potential borrowers aren't necessarily clamoring for new loans. Business loans have picked up of late, yet many companies remain flush and are sitting on record cash piles. Consumers still are largely in debt-shedding mode as they try to restore household balance sheets.