Marketplace has a new podcast for kids, "Million Bazillion!" EPISODE OUT NOW

Are banks really lending again?

Alisa Roth May 4, 2010

Are banks really lending again?

Alisa Roth May 4, 2010


Tess Vigeland: You know all that money we, the taxpayers, gave the banks last year? Well, ever since then borrowers have been asking: When can I get some of that back in the form of a loan?

A recent survey by the Federal Reserve shows some of the nation’s biggest banks have eased their standards for both commercial loans and consumer loans like mortgages. We asked Marketplace’s Alisa Roth to find out if that means they’re really lending and why it’s taken so long.

ALISA ROTH: Let’s start with the good news.

QUINCY KROSBY: There is absolutely more lending than there was.

Quincy Krosby is the market strategist at Prudential Financial. She says loans are going to everyone from big companies to regular people who are refinancing mortgages. But they’re only going to the highest-rated borrowers. And there’s more…

KROSBY: It is still not where we need to be in order to see a major expansion in the economy.

Krosby says it’s not all the banks’ fault though. Borrowers are being a bit chicken.

KROSBY: Loan demand, meaning the actual applications for loans, hasn’t inched up in any material way because the economy has been bad.

She says the bad economy has created a vicious cycle: People are afraid to borrow and the banks are afraid to lend. They’ve tightened restrictions and made it expensive. So expensive that nobody even bothers asking for a loan.

Mike Englund is chief economist at Action Economics. It’s a consulting firm. He says another reason banks are still making it tough to borrow is they need to hold on to their cash because the government’s going to want its TARP money back soon.

MIKE ENGLUND: Cash is needed in order to pay down TARP. You can’t pay down TARP with outstanding loans since the government doesn’t want to take loans in exchange. They want currency.

He says banks also want to be ready in case the government imposes new regulations. One rule could force them to hold onto more money. Money that in the past, they might have lent out.

In New York, I’m Alisa Roth for Marketplace.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.