Business Loans Flood the Market
February 19, 2013, 6:44 p.m. ET
Banks Put Their Liquidity to Work, but Added Competition Puts Pressure on Rates and Elevates Risk
Carl DelPrete, chief executive of suburban New York supermarket chain Uncle Giuseppe's Inc., couldn't be happier with the current lending environment. To fund a recent expansion, he got bids from three banks and calls the terms on the $14 million loan "the best we're ever going to see in our lifetime."
The episode reflects a renewed willingness by some banks to lend cheaply and on flexible terms.
But with banks not far removed from persistent criticism that they were slow to make business loans that would kick-start an economic recovery, a new concern is emerging: Is the pendulum swinging too far the other way?
The surge in loans to businesses is raising worries that lenders are competing so aggressively that some will pay for their largess down the road.
So-called commercial and industrial loans were up 4.4% in the fourth quarter and 16% for all of 2012, according to data compiled by research firm SNL Financial of Charlottesville, Va.
The push comes at a time when many banks have been flooded with deposits as slow economic growth and low interest rates crimp investment. Domestic deposits since mid-2008 have surged 29% to $9.06 trillion, according to Federal Deposit Insurance Corp. data.
source:http://online.wsj.com/article/SB10001424127887324449104578314140876408204.html?mod=WSJ_hps_LEFTTopStories
2 comments:
I agree with the points expressed in this article. If you follow the link on the bottom of this comment you will quickly see that commercial and industrial loan activity is getting very close to the level reached before the financial crisis. While I do not believe we need to worry about a financial crisis because I believe the overall quality of the loans that have been made is much better than it was in 2007, I think inflation should be a huge concern to the public.
http://research.stlouisfed.org/fred2/graph/?s[1][id]=BUSLOANS
I see no issue here with the amount of business loans being made. Based on this article, banks have a sufficient amount of deposits which allows them to have money available for lending. And like Austin mentioned, the quality of these loans are definitely better than those in 2007. I believe that an increase in business spending is a ideal option to keep the economy rebounding.
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