Bank Charge Offs
by Bill WatkinsWe think bank charge off data are important, because banks can’t really participate in a vigorous recovery when charge offs are high: Their capital is under pressure. They are under regulatory pressure. They are spending huge amounts of time managing existing assets instead of lending.
When banks don’t lend, small business doesn’t grow. This is a problem because small business creates most new jobs. Small business has other problems growing, but that’s another topic.
So, what has happened to the charge offs since 2008 Q4?
They kept rising, and almost reached $60 billion in late 2009. Since then they have been falling, slowly, very slowly. Finally, last quarter (2011 Q1) they finally fell almost $10 billion, falling below $40 billion for the first time since 2008’s fourth quarter. This is good news, but they need to fall even more. They need to be close to $10 billion before we can declare the financial sector fully recovered.
In the meantime, more and more banks are resuming lending. Standards are tighter than pre-recession, and many borrower’s are still over leveraged, but movement is in the right direction.
Bad loans resulting from the global credit crisis have battered banks’ profits and triggered an upsurge in the number of troubled and failed banks. Partly to blame are the Mortgage companies that pushed loans for people who did not have the finances to pay for the homes they were buying in order to make a quick buck! Its good to see a slight turn around, hopefully this isn’t the “quite before the storm” and indeed it is getting better.
It is good to hear that banks are moving in the right direction, but it does not seem that they will be fully recovered for a while. I think these things take time since you were in such a mess a couple of years ago. Also, that is good that this article says that there are tighter standards that are in place now to take out a loan. I hoped there would be because of all the foreclosures etc. We will see what happens in the future.
It is sad to me that the people who need loans now are not at fault for what happened in the financial sector. I am very happy that things are beginning to let up though and that banks are lending. I hope that the charge offs for banks do go down much further because it would allow for a faster recovery of the entire economy. As long as banks are scared to lend, recovery will be slow to stagnate.
In my opinion, the only reason bank charge offs are falling is because the banks were forced to stop giving out loans. Today, because of our lock-up in Congress and several other factors, the average American does not know how to spend his money or how and when to take out loans. Now-a-days, if a loan is available, it will be taken out, thanks to salesmen who convince us that we can afford it. Bank charge-offs are going to return to increasing rates as soon as the government allows the banks to hand out more loans.
In my opinion I believe that Mortgage companies were the ones causing all this mess. I’m glad to hear that banks are moving in the right direction because we need this change to see our country in a better situation.
This is interesting because if you’re not an avid reader or watcher of the news this would have slipped right past you. It’s not news that anyone wants to hear, but it is especially pertinent for small businesses who need loans to know about so that they can plan ahead and anticipate the problems they might face in trying to obtain that loan. Knowledge is power, and this is especially true in the business world.