Reasons for a lack of lending growth

One constant over the last few years of economic malaise has been a marked slowdown in the pace of lending. This has vexed lawmakers and regulators, who see expansion of credit as a key conduit by which the economy can recover.

Some think that loan expansion is the least the industry can do, especially after many big banks were bailed out with taxpayer funds. But the balance sheets of the big four consumer banks--JPMorgan Chase, Wells Fargo, Bank of America and Citigroup--show total loans dropped 5 percent to $3.03 trillion as of the third quarter of last year from the post-crisis peak of $3.19 trillion in the first quarter of 2010, according to CNBC. FDIC data shows lending for these top banks is down 8 percent from its peak in 2007.

So who is to blame?

Industry executives have made clear that Dodd-Frank, Basel III and credit card reform has made it all but impossible to robustly turn on the credit spigots. And they’ve got a point. At the same time, given the economy, there’s a dearth of good lending opportunities right now. You can’t lend to just anyone, and that’s a sad fact many executives would rather leave unsaid.

In the end, the key may indeed be the macro economy. If robust growth were to resume, there’s no doubt lending would pick up, even as all the regulations take hold. Until then, banks will have to manage their lending risks aggressively.

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