Big banks lend to corporations over consumers

Lending was up in the first quarter, but that jump has hidden the fact that individuals are still having a tough time getting loans.

By MSN Money Partner Apr 18, 2014 12:52PM
A hand delivering money © kokouu/Getty Images
By Stephen Gandel, Fortune

Consumers are still getting crunched.

In the past week, the nation's biggest banks reported their results for the first three months of the year. Earnings were disappointing. But the numbers also showed a significant increase in lending, which many economists said was a welcome sign for the economy. Fortune on MSN Money

The problem: Every additional dollar, and then some, that the nation's biggest banks have lent out in the past year has gone to corporations. So, while corporate lending was up by 7 percent, or $101 billion, from a year ago, that masked the fact that consumer lending at the nation's five biggest lenders has continued to drop, by $12 billion in the past year alone. 

Economists have been waiting for an increase in lending after the credit crunch that, in part, brought on the recession. And the fact that companies are borrowing more could signal that they have become more confident in the economy and are looking to raise dollars so they can do more hiring or somehow expand their business.

But others worry about how lopsided the volume of new loans has become. The lack of an increase in consumer credit could be a hangover from the financial crisis, which was mostly caused by an avalanche of consumer loan defaults, mostly from not being able or willing to pay their home loans. Corporate lending did not suffer the same losses.

This may have led banks to conclude that lending to corporations is not nearly as risky as lending to individuals. Jamie Dimon, CEO of JPMorgan Chase (JPM), told analysts during a recent conference call that individuals who either have good credit or are buying a very expensive house are able to get mortgage loans. But, he said, his bank and others are still reluctant to make any home loan with "any hair on it."

Corporate lending may not be as risk-free as banks seem to think. Recently, regulators have expressed concerns that as banks rush to lend to corporations, they may become overly lax, like they were in the run-up to the housing bubble. What's more, it's not clear that corporations are using the money they are borrowing to expand.

Some companies may simply be locking in low rates and putting the money in the bank. Corporations have also been buying back massive amounts of their own stock, a lot of it with borrowed funds.

Consumers almost always use the money they borrow, with credit cards and when they take out a new mortgage, for an immediate purchase.

The economy has become more uneven in general since the financial crisis. Corporate profits have reached record highs as a percentage of GDP, even as the economy in general still seems far from recovery. The stock market has made back all it lost in the recession and then some. Yet millions of more people are out of work today compared to before the financial crisis. The lopsided lending market is just one more sign of our stilted economy.

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19Comments
Apr 18, 2014 2:51PM
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What small business or consumer expects anything from the pseudo-governmental agency called a commercial bank anymore ?

Most people are moving on now.

Apr 18, 2014 3:10PM
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By Default it's the Federal Reserve bankrolling all these loans to Corporations at little to no interest while the majority of Consumer are being told to go to Hades. But sure, some posters want everyone to disregard those FACTS. This article is a waste to those who have been totally Dumbed down to irrelevance in making their own choices but prefer that others always think for them.

Credit Scores are just another way for Corrupt Banking Entities and their Elite Masters to become even bigger Parasites off the wages of the Working Poor and Fading Middle-Class. Dumb and Dumber will tell you otherwise.
Apr 18, 2014 2:44PM
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Individuals with good credit can still get loans.

Nothing controversial here.

This article is really a waste of electrons...

Apr 18, 2014 1:13PM
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I'm not sure who banks can give loans  to now with the new lending laws,  post 2008 many people lost their homes claimed bankruptcy and are probably just now figuring out how to make it again.  Last I checked banks don't like to lend to those who have claimed bankruptcy,   which who can blame them. 


Kids coming out of school or college cant find work,  or have no credit history, or are buried in student debt,  which has killed the new generation of people to lend to while baby boomers hang on as long as they can to hopefully retire making up for the 2008 debacle and devastation of their nest eggs. 


 Dodd-frank legislation changed the game for consumer lending. 



Apr 20, 2014 11:20AM
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MG states, "A simple rule would have avoid the whole mess.  No insured bank may write a mortgage without 20% down payment.   This is why Canada avoided any housing meltdown.  They have this rule."


First of all, things in Canada are far more Regulated then here in America. Something that the poster making a Case for Canada wants no part of. Yet he wants to praise our Neighbors to the North whom have far tougher Standards across the Board. Don't praise something that you continually fight against, tougher Regulations. Aka bring back Glass Steagall something that was voted on and who and whom voted for it isn't talked about for obvious reasons. Nor the fact that it was a VETO proof Majority Vote.





Apr 20, 2014 12:14PM
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Banks in Canada are constructed different then here in America. So when comparing their issues or lack thereof in the Financial Crisis should take that into account. The United States GDP has grown more in the last few Years then the Entire current GDP of Canada. Canada is dependent on America as they send nearly almost 80% of their exports HERE. By far the biggest export is energy.

20 out of the last 21 years, Canada has increased their Crude Oil Products to America going from 1.1Mil Barrels per day to now over 2.5Mil Barrels per Day. 20 years ago, the average price of Gasoline was about $1. Today that average price is fast approaching $4. Any Country that was dumb enough to accept America's toxic Derivative scams PAID a Major Price. Apparently the Canadians had tougher Regulations in place that avoided that. Add in the Spike in Energy prices, by far their biggest Export, that's likely why they avoid many of the issues that others did not.

Some posters love to present a Farce Case to what happen during the Great Recession and why it happened. Their BS has never held up to FACTS. Our FED alone has printed more then TWICE the total Size of Canada's total GDP, that just give a hint of the sheer size of the Problems. The Scam Derivative Market is $500-700Trillion and nothing has been done to exactly solve that problem, only to delay the inevitable.

Apr 20, 2014 1:12PM
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Dave years ago most Banks in the U.S. (legitimate) required a 15-20% equity or down payment on a home or piece of property...50s-70s...From the average buyer or home purchaser..

FHA and VA may have been structured a little differently..?


Business, and farm loans were also handled in various ways..

Credit Unions became popular in the 50-60s, and members had other standards.

And they functioned under different rules than banks...

There were a lot less defaults with CU's loans back in the day...

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