Credit is Easing: Loans Rose 10% in Q3

U.S. bank credit is growing at the fastest pace in three years, giving the Fed confidence in the economic expansion’s staying power.

Until the second quarter, the banks had been more interested in shoring up their balance sheets than lending since the start of the financial crisis. Banks raised their levels of equity capital after the U.S. Federal Reserve 2009 stress tests revealed weakness in their assets because of the housing slump and the deepest recession since the 1930s.

In the third quarter financial institutions increased commercial and industrial loans by an average annual pace of almost 10 percent, the highest since the comparable quarter in 2008, according to Fed data. The latest numbers show seasonally adjusted loan growth of 15 percent in October and 6.1 percent in November.

The resumption of lending means a projected fourth-quarter pickup in gross domestic product may be sustained next year despite Europe’s sovereign-debt crisis. In a sign of increasing confidence in the expansion, the Fed’s policy group saw no need for new monetary easing at its Dec. 13 meeting.

U.S. lenders had net income of $35.3 billion in July- September, the best performance in four years, as loan-loss provisions and net charge-offs fell, Federal Deposit Insurance Corp. data showed Nov. 22. They put aside 47 percent less money for bad loans, and charge-offs fell by 39 percent, the FDIC said in its Quarterly Banking Profile released in Washington.