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Some banks are lending less in an uncertain economy

Justin Ho Jan 21, 2021
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The lending decline for some banks comes despite the fact that interest rates are at near-record lows. Andrew Caballero-Reynolds/AFP via Getty Images
COVID-19

Some banks are lending less in an uncertain economy

Justin Ho Jan 21, 2021
Heard on:
The lending decline for some banks comes despite the fact that interest rates are at near-record lows. Andrew Caballero-Reynolds/AFP via Getty Images
HTML EMBED:
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Several big banks reported profits in the last few days, and, in most cases, they have done well thanks to their trading desks, mergers activity and IPO underwriting.

But some banks say lending has cooled. Bank of America and Wells Fargo say they’re lending less compared to the same time last year. And that’s despite the fact that interest rates are at near-record lows.

A recent survey from the National Federation of Independent Business found that just 3% of small businesses are interested in taking on new debt.

“Smaller organizations are strained,” said Kent Belasco, director of the commercial banking program at Marquette University.

Belasco said many businesses are nervous about borrowing, so they’re not buying equipment, a new truck fleet or financing new construction projects.

“Those are big investments, those are growth oriented,” he said. “If you don’t know what the demand is going to be for certain things going forward, are you going to take that risk?”

With interest rates near record lows, banks aren’t earning much from any lending they are doing.

Nate Tobik at CompleteBankData said some banks are being a little more picky about lending.

“There’s no pressing need that they have to lend right now,” Tobik said. “They could sit and wait and see what happens.”

In the meantime, banks that don’t have other big sources of revenue are likely to cut costs, Tobik said. That could mean closing branches or laying off staff.

COVID-19 Economy FAQs

So what’s up with “Zoom fatigue”?

It’s a real thing. The science backs it up — there’s new research from Stanford University. So why is it that the technology can be so draining? Jeremy Bailenson with Stanford’s Virtual Human Interaction Lab puts it this way: “It’s like being in an elevator where everyone in the elevator stopped and looked right at us for the entire elevator ride at close-up.” Bailenson said turning off self-view and shrinking down the video window can make interactions feel more natural and less emotionally taxing.

How are Americans spending their money these days?

Economists are predicting that pent-up demand for certain goods and services is going to burst out all over as more people get vaccinated. A lot of people had to drastically change their spending in the pandemic because they lost jobs or had their hours cut. But at the same time, most consumers “are still feeling secure or optimistic about their finances,” according to Candace Corlett, president of WSL Strategic Retail, which regularly surveys shoppers. A lot of people enjoy browsing in stores, especially after months of forced online shopping. And another area expecting a post-pandemic boost: travel.

What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?

Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”

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