Is lending improving?

Date posted: August 30, 2012

A common complaint in today’s economy is that banks have money, but they’re just not loaning it. Could this be a reason behind our sputtering economy? N.C. State University economist Mike Walden weighs in.

“Certainly … because lending is essential to our economy, both to businesses and to consumers. Of course, consumers generally need to borrow in order to buy big-ticket items like homes and cars and appliances. And most businesses rely on short-term loans in order to keep operating.

“During the recession we saw a big pull back in lending. In fact, lending dropped at an annual rate of 15 percent during the recession. Now prior to the recession, in years prior to the recession, lending was going up about a 10 percent annual rate. So we went from positive 10 percent to negative 15 percent.

“Now the good news in recent years is that lending is back in positive territory. Loans have been rising. They’re up a modest rate of about 4 percent annually. So we’re not quite back to where we were, and I think the fact that they’re going up but at a slow rate is understandable. Again, many businesses and households are still tightening their belts and recovering, and lending standards, which got very loose prior to the recession, have tightened up.

“So, we do have some good news on lending. I think it will continue to improve, but it will improve modestly.”

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