The above graph shows the loans/leases and securities as a percentage of total bank assets. Like other FDIC charts, you need to read this one right too left. However, we see a few interesting points.
1.) Simply eyeballing the chart, we see that loans typically total about 60% of total bank assets and securities/investments typically comprise about 20% of total assets.
2.) However, starting in roughly 2004, the percentage of securities as a percentage of total assets starting to drop. This figure dropped from a high of 20.35% in the 1Q04 to 14.61% in the 1Q08. It currently stands at 20.53%.
3.) In 2008 -- when we start to see the rise in securities as a percentage of -- we also start to see a decrease in loans as a percentage of assets. This percentage his 61% in 4Q05, remained at high levels (58%-59%) until 2008, when the percentage started to drop. It is currently at 52.4%.
The above chart indicates the following in happening.
1.) Banks are letting bad loans run off the books.
2.) Banks are increasing their securities portfolios of take advantage of the interest rate spread and rebuild their capital. This is also a far safer play; if banks invest in high quality bonds, they'll simply take the yield differential as profit as a way to rebuild capital.
7 comments:
What this really means is:
1. The Fed is printing money and increasing the size of bank balance sheets.
2. Banks are using that money to buy securities due to a lack of quick loan opportunities.
3. The Fed actions are failing to stimulate additional lending and the resulting growth.
4. The Fed continues to misunderstand what is really happening.
Of course, an anonymous poster on the net knows more than those silly, highly educated people running the central bank. How silly of me to look for insight in attributed sources.
Just because the poster is Anonymous does not mean he does not know what he is talking about. That would be adhominem.
It would be more useful and professional to rebut Anon's points with facts EVEN if he did not provide citations for his own assertions.
I, myself, have repeatedly tried to get this blog to look at housing data a little differently, and to be wary of averages that fail to explain what is happening on the ground.
Aggregating Housing Tracker data, for example, and then drawing conclusions as if they apply to the whole country is misleading. Some LOCAL markets may have become affordable; some other local markets are still way out of whack.
Even "affordable" is equivocated. It is silly to say that houses are more affordable than in 2005,if they cost less but are still unaffordable to someone earning a median wage.
As far as banks go, they insist they have a right to make profit by using property belonging to others (depositors) while denying profit to the property owners in the form of fair rental for use (interest). Worse, unless the depositor is willing to lock up money, they will also charge those unnecessary monthly maintenance fees.
Banks should pay at least the rate of inflation as interest so that depositor's money does not lose value simply by being in the bank. If money is locked up, then the interest should be greater than rate of inflation and proportional to amount and term.
Anon(2)
The first anonymous comments are the same utter ridicules garbage touted about by the Mish/Ron Paul/Austrian school of abject stupidity which has been bandied about the internet since the start of QE1 and QE2. All of their respective fears of inflation/massive devaluation etc... have been entirely debunked by the markets. Hence, their statements are wrong. And, given that the dollar has not fallen through the floor nor have we experienced Weimar like hyper-inflation, I consider thee topic closed and their arguments moot. Put another way, I don't have time for children taking about economics.
As for housing, if we were an in-depth housing blog (all housing all the time) that would be appropriate. But we're not. Like most econ blogs, we focus on the macro level data.
Well, an in-depth analysis of housing might not be appropriate in the daily overview, but certainly it is appropriate in posts dedicated to housing, and especially in posts that promised to address the question.
Macro has its uses, but aggregates can mask important, even crucial, considerations. Housing aggregates mask a lot of important considerations essential to good-decision making, as demonstrated by real estate agents (even buyer's agents) in my town who falsely use aggregates to persuade buyers to offer more than they should and thus create deceptive comps. "See, housing in the US has never been more affordable (aggregate), so the (bloated) asking price on this house is a bargain.
Eventually, an "investor" (slumlord) buys the house and puts a barely habitable dwelling on the rental market for exorbitant rent. Professionals making twice the median income are compelled to live in these deteriorating rentals, and they can't afford the so-called affordable houses either. The vicious cycle goes on...
Meanwhile, macro analysts make assertions that do not conform to on-the-ground reality.
If banks institutions get top quality ties, they'll simply take the generate differential as revenue as a way to improve capital.
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