Overview

The U.S. Department of the Treasury today released results from its January monthly bank lending survey, showing that the nation's largest banks continued to originate, refinance and renew loans in  January 2009 in the face of a worsening economic downturn.  Despite the worst financial crisis in decades, the survey of the top 21 recipients of government investment through the Capital Purchase Program (CPP) found that most institutions had higher originations across consumer lending categories than in December 2008.

Under a new lending program aimed at jumpstarting the credit markets for small business loans announced today by Treasury Secretary Tim Geithner, the banks participating in the survey will be required to report their levels of small business lending and include that data in their monthly lending surveys going forward.

Overall, the survey found that residential mortgage and student loan origination increased due to lower interest rates and seasonal demand, while commercial and industrial lending contracted from the prior month due in large part to lower demand from businesses, which focused on preserving liquidity and strengthening their balance sheets. Given the dramatically worsening economic conditions during January--unemployment rose from 7.2  to 7.6 percent and more than 650,000 jobs were lost--lending  levels would likely have been lower without the capital provided to banks through the CPP. 

The survey results show that mortgage origination volume rose significantly in January, as lower interest rates fueled a strong demand to refinance home mortgages. The median change in mortgage refinancing was an increase of 110 percent from December to January. This translates to lower mortgage payments for families across the U.S. Similarly, in other areas of consumer lending, which include auto, student loans and other consumer loans, the median percentage change in loan originations was 13 percent, which was driven by seasonal demand for student lending. Meanwhile, credit card loan activity was essentially flat.

Commercial and industrial lending and commercial real estate lending decreased from the previous month due to weakening demand. The median percentage change in the renewal of existing accounts for commercial and industrial lending was a decrease of 18 percent and the median percent change in new commitments was a decrease of 35 percent. 

Both renewals of existing accounts and new loan commitments in commercial real estate lending decreased significantly from December to January. The median percent change in renewals of existing loan accounts during this time period was a decrease of 45 percent, while the median percent change in new commitments was a decrease of 41 percent. Demand in commercial loans and commercial real estate continues to be limited by the economic downturn, as businesses remain cautious in taking on new debt obligations.

The monthly survey is part of Treasury's commitment to greater transparency and designed to provide new, more frequent and more 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, Treasury directly infuses capital into viable banks, stabilizing the financial system and enabling banks to continue to play their vital roles as providers of credit to businesses and consumers.  As of today, there are nearly 500 banks in 48 states participating in the program. 

Snapshot Design

The snapshot contains quantitative information on three major categories of lending – consumer, commercial, and other activities – based on banks' internal reporting, as well as commentary to explain changes in lending levels for each category.  In addition, the snapshot contains a qualitative section that provides market color on lending demand and credit standards generally to help Treasury and the public meaningfully and accurately interpret the quantitative data. 

Why base the quantitative data on internal reporting?  Treasury believes that it is critical to provide the public and Congress with as much information as possible about the programs we are implementing to stabilize the financial system.  In this spirit, the snapshot has been designed to collect new information on a more frequent basis from banks.  In order to do this, Treasury must utilize banks' internal reporting.  This snapshot complements the detailed quarterly reports provided by banks on activities and financial condition to regulators, which is also publicly available.  The Treasury snapshot is focused on lending activities and will be issued on a monthly basis.   This information will also help guide policy making going forward as Treasury and the federal regulators continue to coordinate to develop a comprehensive response to the unprecedented financial markets crisis. 

Why include both commentary and a qualitative section?  Lending levels are a function of credit availability, which is in banks' control, as well as a host of factors outside of banks' control:  loan demand, borrower creditworthiness, capital markets liquidity, the macroeconomic environment, etc. The purpose of the commentary and qualitative section is to allow banks to provide color on the interaction of these variables so that readers can put the banks' information in context and draw meaningful conclusions from the quantitative data. 

What are the limits of the snapshot?  The snapshot's reliance on internal reporting means that aggregation by loan category and comparisons of asset and origination levels across firms may be imperfect.  Snapshot readers should focus on trends within a firm across time, particularly in percentage change terms, a fact that is reflected in Treasury`s summary analysis. 

Summary Analysis

Notwithstanding deteriorating economic conditions through January 2009, the survey of the top 21 bank recipients demonstrates that banks continued to originate, refinance and renew loans in the period from December 2008 to January 2009. Lending levels increased from December primarily in the consumer lending categories which was driven by attractive mortgage rates and seasonal demand factors. The commercial lending segment remained constrained as demand for additional debt remains weak.

·        Mortgage origination volume rose significantly in January 2009 reflecting a strong, sustained demand to refinance mortgages, which continues to be driven by lower interest rates. The median percent change in mortgage refinancing was an increase of 110 percent from the December 2008 to January 2009.

·        In the other consumer lending activity, including auto, student and other consumer loans, the median percentage change in loan originations was 13 percent, largely driven by the seasonal demand for student loans.[1] In general, January is a high demand month for student loans due to the start of the spring term.

·        In credit cards, lending activity was essentially flat in January compared to December 2008 due to normal seasonality as well as lower customer spending. The median percent change in the average loan balance was flat from December to January. Similarly, the median percent change in total used and unused commitments for U.S. credit cards was also unchanged. 

·        Commercial and industrial (C&I) lending activity declined in January reflecting lower  demand  by businesses for loans during a time of weaker economic activity across  most industry sectors.  With business activity lower, small and large business spent less, thus seeking less in loans from banks.  In addition, businesses continued to focus on preserving their liquidity and strengthening their balance sheets. Another major factor for the decreased activity in this sector was the lower overall mergers and acquisition activity.  The median percent change in loan and lease balances was a decrease of 1 percent. The median percentage change in renewal of existing loans was a decrease of 18 percent and the medium percentage change in new commitments in this area was a decrease of 35 percent.

·        Commercial real estate (CRE) lending also declined between December and January 2009. Both renewals of existing accounts and new loan commitments in commercial real estate lending decreased significantly.  The median percent change in renewals of existing loan accounts during this time period was a decrease of 45 percent while the median percent change in new commitments was a decrease of 40 percent. The frozen securitization markets and lack of Commercial Mortgage Backed Securities activity continues to severely constrain transaction activity.