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April 15, 2009
TG-90b
Treasury Releases February Monthly Bank Lending Survey
Residential Mortgage Lending Continued to Grow Among Top 21 Banks Receiving Government Funds, Showing that Homeowners Are Accessing Loans
WASHINGTON-- The U.S. Department of the Treasury today released results from its monthly bank lending survey for February with data from the top 21 recipients of government investment through the Capital Purchase Program (CPP). February data point to a bright spot in the housing lending, but illustrate the continued negative impact of the economic downturn and financial crisis on credit markets and on the demand for loans by consumers and businesses. Against a difficult economic backdrop, banks extended approximately the same level of loan originations in February as in January. The relatively steady overall lending levels observed in February likely would have been lower absent the capital provided by Treasury through the CPP, an indication of the critical role this program has played in stabilizing markets and restoring the flow of credit to consumers and business.
The contraction of the economy and its effect on consumers and businesses in the beginning of the year posed several challenges to the lending environment. Consumer confidence in the U.S. remained near its lowest level in almost 30 years in February. The recession that began in December 2007 is now both affecting loan demand and also reflecting the effects of the sharp reduction in credit that occurred last fall. The unemployment rate reached the highest rate since late 1983 in February, rising 0.5 percentage point to 8.1 percent, while nonfarm payrolls dropped by 651,000 in February. Compared to a year earlier, business shipments of capital goods in February were down 11 percent and U.S exports were down 17 percent, reflecting the world-wide economic slowdown. These negative trends are reducing demand for consumer goods and services and causing businesses to slow or to cease operations entirely. Many businesses are unwilling to expand their operations in this climate. This has cut sharply into the demand for new loans. Within this challenging environment, the February survey shows that banks extended only a slightly smaller total volume of loan originations in February than January. The median growth in total lending was -2 percent in February, with nine banks posting increases in lending and 12 banks reporting declines. However, within this overall picture lending levels varied significantly by category.
Banks have been extending credit to homeowners and have enabled them to access affordable loans and reduce their borrowing costs, as reflected in the median increase in residential mortgage originations across the 21 banks by a healthy 35 percent. The increase in mortgage origination volume in February mainly consisted of the refinancing of existing mortgages. The median change in mortgage refinancing was an increase of 42 percent from January survey results to the February 2009 results. This translates to lower mortgage payments for families across the U.S. Similarly, home equity origination increased in February due to seasonality factors, such as spring remodeling efforts or other home-related projects. The median percentage change in home equity originations was an increase of 18 percent.
Survey results for commercial real estate lending over this same period were not as bright and generally reflected the poor conditions in the commercial real estate markets, the commercial mortgage-backed securities (CMBS) markets, as well as the cautious outlook by businesses. Renewals of existing accounts increased due to the lack of liquidity in the CMBS market, while new loan commitments by banks decreased from January to February 2009. The median percent change in renewals of existing loan accounts in February was an increase of 4 percent. The median percent change in new commitments was a decrease of 23 percent.
Commercial and industrial (C&I) lending moved lower again in February, at least partly due to weakening demand for loans by businesses. Banks specifically cited softened demand for capital expenditure loans and loans to finance acquisitions, plants, equipment, inventory and accounts receivable. The February decline extended January's downward trend, with businesses continuing to cite the challenges posed by the economic downturn on their need for working capital along with their focus on strengthening their own balance sheets. The median percentage change in the renewal of existing accounts for commercial and industrial lending was a decrease of 14 percent, and the median percent change in new commitments was a decrease of 13 percent.
The monthly survey is one measure of Treasury's commitment to greater transparency and is designed to provide frequent and accessible information on banks' lending activities in order to help taxpayers easily assess the lending and other activities of banks receiving government investments through the CPP.
Through the CPP, Treasury invests in viable banks as a means to stabilize the financial system and grow the economy. Strong capital levels enable banks to continue to play their vital roles as providers of credit to businesses and consumers. Since the inception of the CPP, Treasury has funded 547 banks of all sizes in 48 states, Puerto Rico and the District of Columbia.
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