Wednesday, April 18, 2012

Why Aren't Banks Making More Business Loans, Pt. III

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.