Excluding the Fed, banking system interest earning assets (loans, investments) have
shrunk slightly over the past several months reflecting low economic growth and still
relatively stringent lending standards. The Fed is now the lone provider of incremental bank
credit to the system. Earnings wise, the banks in the aggregate are getting by on fees and trading
profits. The banks are also slowly losing market share to other consumer credit facilities.
In their own way, the banks do mirror the economy and collectively they are starting to
offer a bleak picture once more. Moreover, since the Fed is now the primary lender, it
is curious that the Fed seems keen to begin to curtail this service. System data on credit
suggests strongly the Fed is simply bluffing here in the short run with all the talk about
Here's a graphic look at another important component of private sector funding:
Commercial Paper Outstandings
With banks operating a flat asset book, they are not out there chasing deposits. So, my broad
measure of credit driven liquidity has slowed down to a meager 2.8% annual rate based on
six month data. This compares to a 9.2% annualized rate of growth for the six months ended
Jan., 2013 and shows just how slow the system is now running. The liquidity side of the
economy is now functioning just ever so slightly faster than stall speed and points to how badly
a significant pick up in US economic demand is needed.
The Fed should be pressuring bank CEOs to get their asses out into the community to
find and assist the many good business and household credits out there. The banks, having
sinned as profligate lenders, are now sinning almost as seriously by playing scrooge to
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!