Tag Archives: Lending

The debt contraction at work. From Mike Bird at agenda.weforum.org:

The Bank of International Settlements has just released its latest international banking statistics, which run until the end of June 2015, and they make for some pretty horrible reading.

Cross-border lending fell by $910 billion (£589 billion), an enormous slump, and the largest since the fourth quarter of 2008, the worst bit of the global financial crisis.

BIS is often referred to as the central bank of central banks, collating information on financial flows around the world and trying to make sense of what’s happening on a global scale. According to today’s data, cross-bank lending retreated at the fastest pace in more than six years.

The period between Q1 2014 and Q1 2015 was the strongest run since the crash, with a (very small) contraction recorded in only one quarter, and decent growth in the others.

Then it fell off a cliff:

To continue reading: What’s happened to international bank lending?

Even the bank regulators are getting nervous about credit, and they’re usually one of the last to the party. From Wolf Richter at wolfstreet.com:

If you look at auto sales, which are flirting with all-time highs, and at commercial real-estate prices, which are way beyond all-time highs, and if you look at the loans, including subprime, that make it all happen, you’d think the US economy is in a white-hot economic boom.

But the economy is barely limping along. What’s booming is cheap but iffy debt that for the moment still looks good on the surface. And that is rattling bank regulators.

“We are clearly reaching the point in the cycle where credit risk is moving to the forefront,” explained Thomas Curry, Comptroller of the Currency, in a speech today. The Office of the Comptroller of the Currency (OCC) – one in the triad of federal bank regulators alongside the Fed and the FDIC – is fretting about banks’ exposure to the increasing risks of ballooning auto loans, particularly subprime auto loans, and commercial real-estate loans.

As they did in the run-up to the Financial Crisis, banks are “repackaging” these loans, including subprime loans, into highly-rated asset-backed securities, in face of “strong demand by investors” that are reaching for yield, in an environment where banks “are reaching for loan growth,” Mr. Curry said. After having “already extended credit to their best customers,” they’re now lending to “less creditworthy borrowers, with all of the increased risk that entails.”

But the auto-loan binge is good for everyone. It’s good “for automakers and the economy,” he said. “It’s also good for banks,” whose financing made “this activity possible.” By the end of Q2, auto loans accounted for 10% of all retail credit in OCC-regulated banks, up from 7% in Q2 2011.

Total auto-loan balances outstanding shot up 10.5% in 12 months at the end of the second quarter and hit $1 trillion, according to Equifax. And 23.5% of new loans earlier this year were subprime, up from 22.7% a year ago.

To continue reading: Regulator Warns on Autos, Subprime, Commercial Real Estate