The banking system has backpedaled further as we move through early 2011. Not only is the
system experiencing a continuing run off of its loan book, we are now seeing a run off develop
in the system's securities portfolio as banks back away from extended maturities as interest
rates rise. On the monetary front, the Fed's program to buy Treasuries has recently been the only
game in town. Since folks have been waiting to see the banks expand their loan portfolios, it is
neatly ironic that securities holdings have started to run down as well.
A shrinking system balance sheet naturally reduces banking net revenues. To compensate, banks
are raising service fees whenever and wherever they can, and are also allowing the massive
loan loss reserve to run down in a gradual manner. And, of course, the bigger banks are generating
some profits from trading economically dubious derivatives.
Americans love irony, and the banks have been a continuing source of same. In 2005, any Tom
Dick or Harry could get a loan. Now, a half dozen years later, only Rockefellers need apply.
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