Banks aren't lending because they are not as healthy as everyone thinks despite big gains on Wall Street, says Richard Suttmeier, chief market strategist at Niagara International Capital and ValueEngine.com.
According to a quarterly Federal Deposit Insurance Corp., or FDIC, report on bank lending, the number of “problem” banks rose 27 percent in 2009 to 702 — the highest level since 1993.
Construction and commercial real estate loans are creating particular problems for banks, Suttmeier tells Yahoo Finance, adding that delinquent loans in that sector are holding up the flow of capital that could translate into new loans.
“We can't sustain positive GDP growth without the construction market turning around (and) banks getting rid of these bad loans so that they can lend again,” Suttmeier says.
Sheila Bair, head of the U.S. bank regulator FDIC, has said banks should lend more to creditworthy clients thanks to low interest rates.
“A policy of low interest rates is clearly appropriate given the struggling economy,” says Bair, according to Reuters.
“Clearly there was too much credit leading into this crisis ... but I am concerned with it moving too far the other way.”
Banks have said demand for loans is weak as consumers and businesses scale back spending, pointing out total loans in the banking industry fell by 7.5 percent in 2009, the largest year-on-year decline since 1942, Reuters reports.
But for Bair, big banks especially are being too tight with their lending.
“The smaller banks seem to be doing a better job than the larger institutions in making loans or maintaining loan balances,” says Bair.
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