Is the Credit Crunch Real?

In a recent post I compared bank loans to businesses in this recession with the pattern in past recessions. I couldn't see anything that resembled a credit crunch. I cautioned readers that those statistics did not include non-bank credit. So I dug up the data on all credit to non-financial businesses, which includes corporate businesses, non-corporate businesses, and farm businesses. Here's data for the last five quarters:

The underlying data are available here.

The only noticeable drop in credit was commercial paper, but check out the dollar magnitudes; they are small. The increase in bank loans was almost twice the decrease in commercial paper. As I pointed out last week, some of that decline in commercial paper probably triggered an increase in bank loans, as borrowers exercised standby lines of credit they had been paying fees for.

One could argue that this rate of increase is small, and that it's not sufficient for a healthy growing economy. (Hey, you seen one of those lately?) However, it's hard for me to say that the credit crunch was the cause of the recession, given the increases in credit to the business sector.

Now we have to reconcile the data with some of the horror stories I'm hearing from business contacts, including clients whom I trust. It's probably true that some businesses are crunched, but plenty of others aren't. The most credit-worthy businesses may be sucking down credit like beer in a frat house, while riskier businesses are getting turned down. That suggests a sectoral problem rather than a systemic problem.

I'm growing increasingly skeptical that the massive Treasury operations are necessary. Either they are unnecessary, or they have already worked.

Comments

[Steven Hansen:]

The fed is claiming the failure is in the securitization and non-bank commercial loan financing market.

Mar 31 04:08 AM

[Jeffrey Ber...:]

Great article, it raises an interesting conundrum. here is the answer, the problem is not that bank credit is frozen (as evidenced by recent FDIC numbers showing bank loans off marginally y-y in 2008).....it's that it's about to be. The securitization markets are what are frozen. You don't show numbers for commercial real estate (CMBS) or credit card or auto loan (ABS). These declines are what are inhibiting consumers (beyond a normal propensity to save returning) on the one hand, and the commercial real estate business on the other. The tanking economy is causing borrowers in the business world and segment of the commercial real estate world who borrowed from banks, not securitization markets to feel extreme pain from the economic contraction and reduction in asset values, but their banks have not started to foreclose on them.....yet. Reports are rampant of banks extending loan maturities and renegotiating terms in order to forestall pulling the plug on clients. Meanwhile banks are building reserves to beat the band (held as excess reserves at the Treasury, which have gone ballistico). Act II the refinancing/bank loan calling crisis will unfold in the second half, if current efforts to unclog the system and get the economic contraction to stop are not successful.

Mar 31 10:10 AM

[User 347440:]

The credit crunch is a perspective thing. It's not that there aren't banks willing to lend, it's that there aren't credit worthy borrowers out there for the banks to lend to. The era of free credit is over and the glutonous American consumer is going to have to adapt to that reality.

Mar 31 12:02 PM