Risk Aversion Keeps Loans Shrinking

Lending is still on the downswing, the Wall Street Journal finds, as an analysis of 15 banks' total loans on offer in the second quarter shows another 2.8% decline. What's worse, more than half of April and May’s loan volume was tied to refinanced mortgages and renewed credit rather than new loans. Banks are reining in lending to protect against loan losses, the Journal reports, and demand for loans is falling as businesses put off expansion and consumers spend less.

Loans may not expand again until late 2010, say some analysts, making it tough for the economy to heal. The dip in loans, despite the $182.5 billion these banks received in TARP funds, is putting heat on the Obama administration. But one analyst tells the Journal, “you need to be cautious in reading too much into these numbers.” The government money, he noted, was meant to “stabilize the financial markets,” not necessarily boost lending.
(More TARP stories.)