No sign of Credit Crunch at Banks

by Laura Ehrenberg-Chesler on December 18, 2018

in Economic Indicators,Fed policy,interest rates

With all the worry about the inverted yield curve and a potential recession, it was a relief to read Ed Yardeni’s piece this morning about banks, lending, and the yield curve.

From Ed Yardeni:
So what really matters is the net interest margin of the banks. Consider the following:

(1) Interest margin. Data available for all FDIC-insured financial institutions show that the margin has increased from a recent low of 3.0% during Q1-2015 to 3.5% during Q3-2018. That has coincided with the Fed’s program to normalize the federal funds rate. It is up 200bps from 0.00%-0.25% in late 2015 to 2.00%-2.25% currently. Yet the net interest income of FDIC-insured institutions rose to a record $137 billion during Q3-2018.

(2) Charge-offs and dividends. There’s no sign of distress, or even stress, in the FDIC data. Net charge-offs have been relatively stable around $10 billion per quarter for the past few years. Provisions for loan losses have matched the charge-offs. Cash dividends rose to a record $43.8 billion last quarter.

(3) Business loans. Remember the scare about the near-zero slowdown in the growth of commercial and industrial loans at the beginning of this year? Fuhgeddaboudit: Loan growth has picked up since then, rising 8.9% y/y to a record $2.3 trillion through the 12/5 week.

(4) Bottom line. Despite this year’s flattening of the yield curve, there’s no sign of a credit crunch at the banks.”

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