On February 17, 2009, the Treasury Department released its first monthly bank lending survey, comprised of the largest 20 recipients of TARP Capital funds.  The survey found that despite the economic deterioration in the fourth quarter of 2008 and news of doom and gloom nightly, banks “continued to originate, refinance and renew loans.”

These originations, refinances and loan renewals were not, however, always sufficient to offset loan payoffs, resulting in lower overall balances of residential mortgage and commercial loans.  “Over the period, the median change in residential mortgage loan balances was a decrease of 1 percent, while the median change in corporate loan balances was a decrease of 1 percent. Meanwhile, the median percent change in loan balances for U.S. credit cards was an increase of 2 percent, reflecting greater reliance on existing credit lines by consumers.”

While only the top 20 banks are currently included, the Treasury indicates that it “is in the process of developing a more streamlines snapshot for smaller institutions.”

The Treasury’s analysis, as well as several of the individual responses, can provide useful guidance on how to explain the difficulties of lending in this economy, both generally and in response to the SIGTARP request.  In response to the question, “Are banks doing what they’re supposed to do, providing credit to borrowers in a safe and sound manner?”, the Treasury explicitly notes that answering the question “is difficult because we are in an economic downturn, during which it is common for lending levels to contract.”  The Treasury goes on to note that “the demand for credit by consumers and businesses typically falls during an economic downturn, reflecting caution by both lenders and borrowers to take on new risk during uncertain economic times.”

The Treasury also acknowledges that quantitative date alone isn’t sufficient.  “Lending levels are a function of credit availability, which is in the banks’ control, as well as a host of factors outside the banks’ control: loan demand, borrower creditworthiness, capital markets liquidity, the macroeconomic environment, etc.”  Only with supplemental qualitative analysis can the result properly be understood in context so that meaningful conclusions can be drawn.

BB&T notes that it purchased over $10 billion in mortgage-backed securities following recipt of TARP Capital funds, but plans to “re-deploy the cash flow from our securities portfolio into lending over the course of the year, thereby changing the mix of our balance sheet, but holding total asset levels fairly stable throughout the year to maintain our capital levels.”

In explaining its decision to purchase securities backed by consumer loans, Capital One explains that “in the current economic and market environment, investing in high-quality, short-duration securities provides appropriate risk-adjusted returns for our shareholders, and supports the recovery and stabilization of secondary markets that are critical to consumer lending and the economy.  Capital One believes that this disciplined stance is in the best interests of both our customers and investors, including the U.S. taxpayer.”