Bank of America Shocker: New Commercial Loan Plunge Is Largest Since Lehman

Tyler Durden's picture


Roughly two months ago, when we compared the loan data released by America's largest, TBTF banks, and what the Fed's own commercial bank data revealed in its weekly H.8 statement, we asked a simple question: "Is The Fed Fabricating Loan Creation Data?" Visually, the discrepancy was shown as follows:

Our summary then:

Is the Fed fabricating loan level data?  Or, less dramatically, is the Fed merely once again goalseeking its weekly "data" to account for a world in which deposit expansion is no longer running at the pace seen in pre-taper days. It would be logical that the one "plug" the Fed would adjust to balance off its model is to boost lending activity, which would explain why the Fed is suggesting lending is surging.


Unfortunately, lending is not only not surging, it is contracting, if only among the Big 4 banks in the first quarter.


So whether the Fed has an ulterior motive, or is simply fudging for a lowered Fed reserve creation growth trendline, we believe the people deserve an answer: just what is really going on here?

Why is this data so important? Because absent a pick up in commercial bank lending, which should eventually match and surpass the amount of bank "assets" created by the Fed's QE (which in 2013 amounted to $255 billion per quarter), then bank liabilities can't grow nearly as fast, and as we showed earlier this week, neither can US GDP which is directly correlated to the amount of commercial bank liabilities in circulation.

In other words, more than anything else, it is loan creation - i.e., money creation in its conventional pathway, via commercial banks not via the mutant, aborted process in which the Fed creates money only to ramp asset values - that is so critical for real, not artificial, not manipulated, US economic growth.

So did we make up our allegation, and did we simply dream up the data that we showed above?

Well, no. At least not according to one of America's largest banks: Bank of America. As BofA's Michelle Mayer admits, looking at C&I loan data - both that sourced directly by BofA, and by the Fed's own call reports, while "the outstanding level of commercial and industrial BAC loans has been growing at a fairly steady pace for the past three years"... "there was acceleration into 2013, but the last few months show some slowing, consistent with the weakness in capex spending. The Federal Reserve data are more volatile, showing both a bigger slowdown last year and a bigger pickup recently." 

She concludes: "A meaningful improvement from trend would be a signal that a more robust capex recovery has begun. We have yet to see this in the data."

We sure do: because the bulk of cash that would otherwise be spent on CapEx: that most productive use of funds for the entire economy, and for broad GDP in general, has instead been trapped and redirected into shareholder friendly, but business model crushing, stock buybacks mostly purchased on credit, which means the moment there is another downturn and rates rise, all those corporations which succumbed to activist investors will be that much closer to record-levered insolvency.

But back to loans, because while the C&I data is mixed at best, where things get really bad is looking purely at commercial loans.

It is here that Bank of America reveals the startling truth:

The number of new commercial loans made by BAC has declined notably over the first half of the year. Measured as an indexed level to cycle peak (which was December 2005), the data show that the recent drop was the largest since the recovery began.

Oops. If this is accurate then not only is the Fed fabricating loan data outright, it is massively misrepresenting the general direction of loan creation altogether. In fact, if loans are contracting, when one adds the decline in reserve "asset" creation, then banks are set for a world of pain come October when QE is set to end!

BofA admits as much:

The drop in new loans is a worrisome sign given the importance of new business formation and small business expansion in generating a stronger overall recovery. The number of loans for renewal/extension has remained fairly constant, holding steady through the recession.

And visually:

So while we will know for sure if the Fed is lying after the Q2 bank loan data is released when we have two quarters of discrepancies, the initial readings are very troubling. What is worse, it may well be that the Fed is not maliciously and deliberately manipulating loan data, but is merely Fed incorrect information. Which would explain its willingness to taper: if the Fed realized that bank loan creation is not only not growing but declining, what it should be doing it untapering post haste and in fact adding to QE.

We wonder just how long it will take Yellen to grasp this fundamental flaw in its thinking...

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Wed, 06/11/2014 - 08:58 | 4844029 AccreditedEYE
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Who the hell wants to expose themselves to LIBOR + "unknown" over the next few years when you can lock in low rates via bond issuance and buy back stock? Loans are for R&D... and actually, I forget what that stands for.

Wed, 06/11/2014 - 09:06 | 4844069 ArkansasAngie
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" ... if the Fed realized that bank loan creation is not only not growing but declining, what it should be doing it untapering post haste and in fact adding to QE."

Horse manure.  

More QE is going to save us?

Liquidity does not solve insolvency.  

It's time to deleverage.  

It's time to throw the dad gum bums out and let moral hazard reign.  Then things will get better. 

Wed, 06/11/2014 - 09:49 | 4844169 GetZeeGold
GetZeeGold's picture



Looks like someone is getting a nailgun kit for Christmas.


Yes I said with it.

Wed, 06/11/2014 - 10:19 | 4844385 max2205
max2205's picture

550 liars in govt all of which need to serve 20 to 30 in the big house


Fuck them all

Wed, 06/11/2014 - 10:35 | 4844457 Cthonic
Cthonic's picture

Too generous a retirement, me thinks.  Ship 'em to Somalia and let them scrounge.

Wed, 06/11/2014 - 16:33 | 4846031 johngaltfla
johngaltfla's picture










It's how all bubbles end boys and girls....

Wed, 06/11/2014 - 18:54 | 4846454 nope-1004
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So is this insovent bank, insolvent?  lol.  Good night BofA.


Wed, 06/11/2014 - 23:56 | 4847416 TheReplacement
TheReplacement's picture

In the early 1900s two guys are trekking through some forsaken wilderness when they were captured by natives.  The chief of the natives knew some engrish and spoke with them once they were penned up. 

Chief, "We offer you a choice.  You can choose death or oogy."  Then he looks at one of the men and says, "Make your choice now."

The man almost immediately chooses oogy.  How bad can that be?

He is taken from his imprisonment, tied to a tree trunk, and orally and anally raped by every male in the village.  Some of the women join in using the aft end of the warriors spears.  This goes on for hours until the man dies as his friend watches helplessly.

The chief returns to the cage and ask the other man to choose.

"I'll take death!", the man shouts.

The chief stares at him for a moment, nods, and says, "Death it is.  You will be beheaded on the same log your friend is laying dead on now.  But first, OOGY!!!"


My point, yes we will have deflation.  But first, INFLATION!!!



Wed, 06/11/2014 - 11:21 | 4844739 xtop23
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"...... when QE is set to end."


You're such a joker Tyler :)

Wed, 06/11/2014 - 13:21 | 4845308 MansaMusa
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"QE is set to end in October..."

Is that before or after another black flag staged military emergency?

Wed, 06/11/2014 - 23:47 | 4847404 TheReplacement
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You make us wait?

Wed, 06/11/2014 - 13:04 | 4845231 SDShack
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"flawed thinking is never detected within the federal reserve."

A sociopath is incapable of believing their thinking is flawed. Hence the reason why the world is fucked.

Wed, 06/11/2014 - 17:04 | 4846165 Anusocracy
Anusocracy's picture

Their thinking stems from their morality and that is what is flawed.

Wed, 06/11/2014 - 18:16 | 4846355 CH1
CH1's picture

A sociopath is incapable of believing their thinking is flawed. Hence the reason why the world is fucked.

I'd state it differently:

The world is fucked because people obey sociopahts.

Wed, 06/11/2014 - 22:37 | 4847246 Bunga Bunga
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A First-Rate Madness: Uncovering the Links Between Leadership and Mental Illness


The Startling Accuracy of Referring to Politicians as 'Psychopaths'

Wed, 06/11/2014 - 09:27 | 4844152 Quinvarius
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Well.  That's not going to be allowed to happen.  Those bankers control the creation of money.  They are going to get paid no matter what.  If they can't earn it, they are just going to give it to themselves.

Wed, 06/11/2014 - 10:18 | 4844377 SofaPapa
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And as long as enough people are willing to trade what bankers are printing for true tangible wealth, they can get away with this.  But knowledge in the population of the true "value" of the paper they are gifting themselves is growing.  Or is that just wishful thinking on my part?

Wed, 06/11/2014 - 19:43 | 4846639 hot sauce technician
hot sauce technician's picture

No. Working John Qs around the world are slowly coming to the realization that the insulated political elites, all of whom play by the same fiat rules, are disconnected from their actual concerns and are getting more apathetic and agitated with the deep state which has been the political model du jour since - more or less - WW2.

I don't know if behavior will turn violent but thanks to the internet alternatives to services traditionally provided by governments i.e. despots to "the people" are available and potentially can make deep state governments obsolete without firing one shot. Examples are abundant.

Thu, 06/12/2014 - 00:04 | 4847438 TheReplacement
TheReplacement's picture

Care to list some of the abundant examples where virtual things in the ether have actually defeated an enemy in a gun battle? 

The only way words win a gun battle is if you use words to convince enough people to fight on your side to win.  Words cannot and will not stop homocidal maniacs and psychopaths from pulling the trigger.  If that were true the Putin would be #cryinglikeabitch, Assad would be hiding in Antarctica, and the jihadis would be on their knees repenting due to all of the things said, done, shown on the internet. 

If you say you are talking about bitcoin then what I wrote above is meaningless to someone like you.

Wed, 06/11/2014 - 09:39 | 4844194 LawsofPhysics
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You are on the right track angie, but keep going, you will get to the final conclusion and realize that there is simply no monetary, fiscal, or political solution to scarcity.

hedge accordingly.

Wed, 06/11/2014 - 09:45 | 4844223 ArkansasAngie
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I fear that.  And I fear what the "elites" will do to get rid of the problem ... 


Wed, 06/11/2014 - 09:51 | 4844244 Spastica Rex
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What if all the unemployed people in the world were lifted up to Heaven like balloons? Could that help?

Wed, 06/11/2014 - 16:58 | 4846126 g speed
g speed's picture

@ Laws of physics  ---no where in there do I see mention of the elephant in the room--collateral---is there some connection with the china rehypotication of warehoused collateral going missing and less business loans by BoA---just asking-- 

Wed, 06/11/2014 - 10:07 | 4844321 Citxmech
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The Fed's decision tree basically looks like this:

Excessive Inflation?  -->  Gently restrict liquidity/raise rates. 

Any scintilla of Deflation? --> Open the monetary firehose.

When your rates are at friggin zero, the printers turned up to "11" and deflation is still winning the day, the only other option they seem to have is gaming the stats, kicking the can, and securing life preservers for the chosen ones (under the guise of critical services).

The scary part is how well this seems to work. . . until the day it doesn't.

Wed, 06/11/2014 - 13:09 | 4845255 SDShack
SDShack's picture

It's actually worse then that. We have deflation in real wages and real assets (only bubble assets are increasing). While we have inflation in commodities and staples... energy, food, utilities, rent, healthcare, etc. The middle class is being purposely squeezed out of existance. The only question is when will they decide they have had enough and fight back.

Wed, 06/11/2014 - 13:38 | 4845380 Citxmech
Citxmech's picture

I was actually going to put a bit in my post about bi-flation causing the fed to short-circuit in cognative dissonance - but the post was getting muddied.  

I think your observation is absolutely clear and correct though.  We've got defaltion in credit driven secorts and inflation in critical comodities.  

Makes it tough for Yellen & Co. when your only tool is a hammer and they need to remove a screw.

Thu, 06/12/2014 - 00:07 | 4847439 TheReplacement
TheReplacement's picture

They aren't trying to remove the damn screw already.  Why can't people understand that it is all intentional from the pols to the bankers?  These people are saying, by their actions, that they mean to kill you all.  Isn't it time you started listening?

Wed, 06/11/2014 - 10:51 | 4844562 NEOSERF
NEOSERF's picture

QE may not work but in the Fed's opinion, QE=confidence and without it, the emperor's clothes are just that...

Wed, 06/11/2014 - 17:26 | 4846241 lasvegaspersona
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(cue the Doors) this is the end...things are not going to get better, not in this dollar's lifetime. You seem to be thinking that we just need a good deflationary enema. In other times that has worked. It won't work now however because the problem has grown to the level where only killing off the currency and using a new 'improved' medium of exchange. I call it the 'new dollar', Jim Willie calls it the Schite dollar...whatever. Every fiat currency reaches a point at which it has to be let go and a new instrument put in place. We have come to that point for the dollar....give it a kiss and say goodbye. Don't be angry it happens to ever single fiat. It is a feature not a bug. We will do well with the new one and good things will eventually come. Maybe next round people will come to realize that fiat is just a medium of exchange. It and it's derivatives should not be used to store wealth. The state likes that but they always over print and long term savers who use the currency for savings come, inevitably , to tears.

Wed, 06/11/2014 - 23:46 | 4847403 TheReplacement
TheReplacement's picture

I believe that part was meant to be seen as the point of view the Fed will/should have based on their overall belief that they can manage and control an economy.  That they cannot should be a forgone conclusion to anyone reading stuff like this on ZH.

Wed, 06/11/2014 - 09:13 | 4844100 SAT 800
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The reason for a decline in commercial loans is called "disintermediation". Corps. can and are borrowing directly from the bond market; and bypassing the Banks fee structures.

Wed, 06/11/2014 - 09:19 | 4844124 Oracle 911
Oracle 911's picture

After seeing this I no wonder why China's manufacturing is in decline, and why nobody wanted buy Chinese bonds.

Wed, 06/11/2014 - 19:18 | 4846525 JuliaS
JuliaS's picture

I'm also curious what impact crowd-funding has on the paper market. Originally the loans would've come from banks, instanly expanding the money supply through fractional reserve multipliers. Nowdays, crowd-funding is becoming a prefered method of borrowing. That money comes from savings, as oppose to loans, which, at best, transfers deposits from A to B. No new money is created.

Digital currencies take another small bite out of the pie, which would be insignificant if it, once again, weren't for fractional reserve lending and excess leverage.

Wed, 06/11/2014 - 10:08 | 4844327 JRobby
JRobby's picture

It stands for "currently deductible"

Wed, 06/11/2014 - 12:54 | 4845183 Freddie
Freddie's picture

I was in one of those vile big shit banks.  The one the Saudis bailed out and own part of.  Thing really Big.  The branch is in an affulent area.   The place was a ghost town. I was the only one in there and will be moving to a credit union or the mattress.

One lady there said they needed to go stand on the street corner to get customers. 

I silently chuckled to myself knowing that the big money center banks are (evil) whores.

Wed, 06/11/2014 - 09:00 | 4844033 SheepDog-One
SheepDog-One's picture

Don't use these banks for anything, starve the parasites! Free money is empty calories, they can gorge on it for a while but will starve eventually.

Wed, 06/11/2014 - 08:58 | 4844034 maneco
maneco's picture

The news should be bullish for stocks!

Wed, 06/11/2014 - 09:16 | 4844112 SAT 800
SAT 800's picture

Only insofar as the Corp. funding from direct bond sales is used for stock buybacks; which a lot of it is. However, there's obviously a limit to this phenomenon. Market Watch has "Buybacks are the reason for DOW17000" as a banner this morning; this kind of "everybody knows it know" situation usually means it's about over and done with.

Wed, 06/11/2014 - 09:02 | 4844038 LawsofPhysics
LawsofPhysics's picture

Full faith and credit, in other words, no more faith means no more credit for you...


Good thing we bailed these fuckers out huh?  real capital is derived from savings and a banker who does the only real "work" they have called due diligence on an honest loan.  As soon as they started creating money out of thin air, it was only a matter of time...

Roll the motherfucking guillotines and shut off the SNAP cards, nothing changes otherwise.  Time to sort thgis all out. Bring it.

Wed, 06/11/2014 - 09:07 | 4844080 dontgoforit
dontgoforit's picture

Stop SNAP and things will change alright.  They will burn the house down - literally.

Wed, 06/11/2014 - 09:35 | 4844182 LawsofPhysics
LawsofPhysics's picture

Based on the intellect and decision making skills of the average SNAP recipient, you sir, are an optimist.

Wed, 06/11/2014 - 09:52 | 4844251 Spastica Rex
Spastica Rex's picture

Fire is a primative tool.

Wed, 06/11/2014 - 12:58 | 4845195 Freddie
Freddie's picture

We train young men to drop fire on people, but their commanders won't allow them to write 'fuck' on their airplanes
because it's obscene!

Col. Water E. Kurtz

Wed, 06/11/2014 - 13:34 | 4845368 Kprime
Kprime's picture

gotta have some semblance of civility.  lmao

Wed, 06/11/2014 - 12:59 | 4845207 roadhazard
roadhazard's picture


Wed, 06/11/2014 - 13:33 | 4845361 Kprime
Kprime's picture

I hope so.

Wed, 06/11/2014 - 09:01 | 4844040 Dr. Engali
Dr. Engali's picture

It's that damn pesky weather again. Who would've thought we would have snow in the winter time? I'm sure we will see a snapback........... In 10 years or so.

Wed, 06/11/2014 - 13:31 | 4845357 Kprime
Kprime's picture

when global warming finally kicks in we are going to have a boner of a GDP

Wed, 06/11/2014 - 09:01 | 4844049 stant
stant's picture

Liquidity trap

Wed, 06/11/2014 - 09:06 | 4844075 ArkansasAngie
ArkansasAngie's picture

Insolvency trap

Bankruptcy is good

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