"Who Hit The Brakes?" - Bank Loan Creation Suddenly Tumbles To Five Year Low

Tyler Durden's picture

While the overall economy appears to be humming along, at least according to the Fed which on Wednesday is expected (with 100% certainty according to the market) to hike rates by 25bps for the second time in three months on concerns it has fallen behind the inflationary curve, with last week's payrolls report providing some validation despite prevailing weakness within "hard data" in recent months offset by soaring "soft" sentiment reports, one area of material concern has emerged: a sudden collapse in loan growth in general, and the all important Commercial and Industrial Loan segment in particular, a drop which the WSJ recently dubbed an "ominous economic signal" and blamed policy uncertainty under Trump for the collapse in growth.

While the jury is out on whether Trump is at fault - after all the same Trump has managed to reportedly spark a historic "animal spirits" rally in the S&P, while prompting a record number of people to re-enter the labor force in the past two months -  here are facts: total loans and leases by U.S. commercial banks are currently rising at an annual pace of about 4.6%, based on weekly Fed data. That is down from a 6.4% pace for all of last year and peak rates of around 8% in mid-2016. This is the slowest pace of debt creation since the spring of 2014.

While the deceleration has been broad-based across business, real estate and consumer lending and, as the WSJ notes, "is at odds with the idea of a stronger economy and rising sentiment."

But the slowdown has been especially acute in the all important for growth Commercial and Industrial loan category, which after growing at a pace of 10% in the first half of 2016, has suddenly and unexpectedly tumbled to just 4.0% as of the latest week, nearly 50% lower than the 7% growth notched at the start of the year.  This was the lowest pace of loan growth since July of 2011.

There has been no definitive explanation for this sudden phenomenon, prompting the WSJ to inquire "who hit the brakes?" which is ironic because just as troubling as the big drop in C&I loans is the relentless grind lower in auto loans, which are likewise growing at a pace that is half what it was as recently as last September.

Two potential ideas have been put forth to explain the sharp slowdown: according to Barclays analyst Jason Goldberg it is possible that companies have shifted from the loan to the bond market, and are selling more bonds to lock in cheap financing before rates rise, while not encumbering assets with issuing unsecured debt. To be sure, corporate debt issuance in January soared by 43% from a year earlier, however the number may be misleading as it comes from a low base in the year-earlier period, when global markets were in turmoil.

The other, more troubling explanation is that either political uncertainty is causing companies and banks to put off big decisions until the outlook for trade and tax policy is clearer, or that consumer demand for loans has plunged, forcing a sharp slowing in loan demand, as the underlying economy suffering a steep slowdown perhaps on the back of surging interest rates. The lending slowdown began showing up clearly just before the election last year, which also coincided with the sharp jump in interest rates.

If it is uncertainty, and should it persist, caution on the part of lenders and borrowers could become a growing drag on the economy. Alternatively, if the slowdown is rate-dependent, any future Fed rate hikes will only further pressure loan growth: 3M Libor has continued its relentless rise higher, and with every passing day makes new 8 year highs.

At this pace, C&I loan growth may turn negative Y/Y within a few months, and since historically US economic growth has been a function of easy bank credit, should the recent drop not be arrested, it is likely that the Fed will have no choice but to reverse its tightening course in the very near future.

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Four chan's picture

jew bankers pick up where jew media left off attacking trump by tanking market. the war is on america.

Usura's picture

Tanking the market to undermine Trump could be an effective short term strategy.  But what is their medium term goal?

max2205's picture

It is likely that the Fed will have no choice but to reverse its tightening course in the very near future.

Really, tighten course?  Funny

Escrava Isaura's picture

Bank Loan Creation Suddenly Tumbles To Five Year Low

Now more than ever Americans need public spending by Trump or they will go hungry.

Dear readers, stop listening to the conservatives, because they have a blind side about money. They are incapable of admitting that: Capitalism can’t work without capital, period!

Trump needs to borrow directly from the Fed at 0,0001 percent and invest in energy, in graduating more doctors and nurses, infrastructures, jobs, and so on and so forth. Then, these Americans will have money to keep their homes. The malls going. And jobs for the young generation.

Tell Trump to forget tax-credits because these are scams to enrich the bankers. Tell Trump to stop issuing Treasuries. Tell Trump to borrow directly from the Fed. Much cheaper and much quicker.

If the Fed won’t lend to America at 0,0001 percent, do what Marine Le Pen will be doing for the French, tell Trump to issue an American money: The American Bills. These American Bills should not be in currency. Can’t not be exchanged for dollars. And it’s debt free money, meaning, it cannot be lend out. You can only earn it by working.

 

willy up the creek's picture

So, let me see if I've got this right. All we have to do, essentially, is print our way to prosperity.  Brilliant!  Pure genius, and yet, so simple.  No one's ever tried that before, have they?  Oh, they have?  Well, how did it work out?  

Escrava Isaura's picture

Prosperity? We’re talking basic survival here.

Prosperity is vocabulary of rich folks.

 

Giant Meteor's picture

"Now more than ever Americans need public spending by Trump or they will go hungry"

Now more than ever, Americans need a dose of reality. It looks like they'll soon be getting it too. Also, Americans could use a bit of truth and reconcilliation, how, over the last many years they've been conned by those that wish to keep them dumbed down and compliant serfs on the plantation. I mean, the level of bullshit is one thing, but damn, the quality of bullshit is shot all to hell.

Americans have learned that perverts and psychopaths have been in charge, for a very long time, and no surprise really things are starting too, um, unravel.

A dose of the clap might be better than what these snake oil salesmen are selling. At least that is treatable ..

 

Escrava Isaura's picture

Americans need a dose of reality.

Could you give us couple examples what you mean by reality? But, please, save the rhetoric, because that’s counterproductive and it doesn’t help understand the real problem.

 

Giant Meteor's picture

Reality? Wikileaks, that kind of reality ... Start there, work from there, nothing else is relevant unless that is your starting point.

Look, just hit the high's here, or if you prefer, the low points.

Americans have learned, or should have learned by now, they are controlled, manipulated and spied upon by a "shadow government" managed by "the deep state" bully boys, who create havoc here and around the globe. We have learned that "National Security State" really has NOTHING to do with National Security at all, but is in fact a honey pot, a tool, many tools, to create instability and strife within our own confines and communities, and of course in equal amounts around the globe.

Start all further premise from there ...

As to the "markets" and the so called markets, is nothing more than a complete and massive "control fraud", pump and dump of biblical / epic proportions. If not for the known (and many unknown) iterations, movements and underpinnings of the FED, and their massive print operations, to juggling the plates in the midair, to LEVITATE what passes for "an economy of scale", the entire shit show would come crashing down tommorow, making the last great depression look like a fucking cake walk in the park.

Save the rhetoric? Rhetoric is what we do here ..

Counterproductive? Well I never assumed otherwise. You ? I am productive when I actually do something of benefit to someone else, that produces some degree of value, and then engage in a fair exchange for that service or product that was rendered.

You know, the old fashioned way.

Do you honestly believe you are being productive here ? Writing here is somewhat like engaging in the pastime of attempting to exercise ones thinking brain, or at least that is how I prefer to look at it. To read others, whether agree or disagree matters little to me. Your rhetoric about saving rhetoric is an exercise in mental masturbation. Frankly real masturbation is more "productive."

I would say knitting is probably more productive still, as it usually produces something of some value thats not sticky.

No my friend, I am merely attempting to save what few brain cells, and sanity is left. Now if it is more specifics you require, get off your ass, and start seeking your own answers .. Furthermore, I'm not sure how much more convincing you need. Its all bullshit, all the time.

Giant Meteor's picture

Ok you little shit head, you've piqued my interest ...

Point by point ..

You: Dear readers, stop listening to the conservatives, ...

Me: This is no dear fucking Abby column, and exactly, WHO are these conservatives you are referring to?

You: because they have a blind side about money.

Me: A blind side about money? There has been a BLIND SIDE about money since 1973 MINIMIUM by ALL of Deep State .. I might add, that didn't happen by ACCIIDENT ... read up on your history kid ..

You: They are incapable of admitting that: Capitalism can’t work without capital, period!

Me: We can AGREE here, however, due to your other comments being inane and all over the ball park, I have to stipulate that most any squirrel can catch a nut sometimes. On the other hand Capitalism without capital ie; RENT SEEKING is what we do. And of course this is MAJORLY facilitated by the same FED that you are claiming the don should now go begging to to BORROW MONEY, on the cheap or not, makes no fucking difference. It is an illusion, simple slight of hand. a cheap magicians trick, and I don't believe the fed would be saying anytime soon, why ok don, very good, here ya go!

You: Trump needs to borrow directly from the Fed at 0,0001 percent

Me: Already covered see above.

You: and invest in energy, in graduating more doctors and nurses, infrastructures, jobs, and so on and so forth.

Me: You left out magic fucking unicorns. Still, I like your naivety. Its cute.

You: Then, these Americans will have money to keep their homes. The malls going. And jobs for the young generation.

Me: Holy Fucking Shit! Have you been hitting the crack pipe this morning!?

You: Tell Trump to forget tax-credits because these are scams to enrich the bankers.

Me:: Ok you've sobered up, I'll give you some credit here, although it is already covered in my answers above.

You:Tell Trump to stop issuing Treasuries. Tell Trump to borrow directly from the Fed. Much cheaper and much quicker.

Me: Tell Trump to end FED and take give back control TO the treasury. Now I'm smokin crack ..

You, in conclusion: If the Fed won’t lend to America at 0,0001 percent, do what Marine Le Pen will be doing for the French, tell Trump to issue an American money: The American Bills. These American Bills should not be in currency. Can’t not be exchanged for dollars. And it’s debt free money, meaning, it cannot be lend out. You can only earn it by working

Me, Well why in HELL did you not say so in the first place .. We could have avoided this misunderstanding, The trouble is, when you start out with something like ,,, "Now more than ever Americans need public spending by Trump or they will go hungry." it tends to make you appear foolish, and I am being polite here ...

 

Zorba's idea's picture

The only viable fix for survival is to end the FED's/Central Banker's Monopoly. Return the authority to the US Treasury to print the nations currency. Read President George Washington's "Farewell Address" to the country...a prophetic warning which remains every bit as relevant today. More FIAT as our only solution, for christ sakes, hey, my cousin Vinny has a bridge for sale, after the purchase he'll send you the terms and conditions.  

robertsgt40's picture

Memo to Fed: The bottom end of the food chain is running on fumes. 

Okienomics's picture

I'M CALLING YOU OUT AGAIN ZH: "Reduced acceleration" is NOT THE SAME AS HITTING THE BRAKES.  ZH makes this same false claim again, and again and again.  They say "it's collapsing" when it's really still accelerating, just not at the same rate as before. 

If you're not getting my point, try this.  You start out at zero MPH.  Ten seconds later you're at 40MPH.  That's an acceleration rate of 40MPH per 10 seconds (reduced = 4MPH/sec).  Ten seconds after than, you're at 60MPH.  Now you're accelerating at 20MPH/10SEC, or 2MPH/sec.  Ten seconds after that, you're at 70MPH, so your acceleration is 1MPH/sec.  POP QUIZ.  if, ten seconds later, if you're at 75MPH, does that mean you put on the brakes?  Nope,  You're still accelerating.

Now, back to the article.  BANK LOAN ARE STILL ACCELERATING.  Not crashing, not collapsing, not putting on the brakes.  STILL INCREASING, just not as much increase as the prior period.  Come on ZH.  Either the Tylers are stupid, or they're purposefully deceiving their audience.  Wonder why.

Doña K's picture

The word you are looking for is decelerating.

Okienomics's picture

Yes and no as that word can mean two things, declining acceleration or slowing down.  Tyler is claiming slowing down (putting on brakes), I'm saying it's declining acceleration (foot is still on the gas).  

seataka's picture

"My fellow Americans, I am proud to announce that has been a decrease in the increase in inflation" Richard Nixon

 

Chris88's picture

Look at the comments for an indication on who their target audience has become and you'll answer your own question.

hendrik1730's picture

You forget about inflation. In your example, inflation is headwind and you measure airspeed, not groundspeed and the headwind is picking up - is about 20 mph now.

CRM114's picture

You can be "hitting the brakes" and still accelerating if you are in freefall.

 

Whuffo.

Giant Meteor's picture

While the overall economy appears to be humming along ,

Depends what the definition of humming is, and of course all things considered, nothing is equal ..

Humming along? By whose definition?

Bubbles and faked numbers, valuations and empty promises as far as the eye can see ...

max2205's picture

And money market funds are giving me more....finally 

MASTER OF UNIVERSE's picture

I, MASTER OF UNIVERSE, hit the breaks on loan issuance throughout the entire world because I am now first in line for credit, and the banks will not even lend me a few hundred million crappy Petro-dollars. Now, the banks are going to find out who the real boss of High Finance is in this world. I, for one, will take all of Wall Street down to the ground and sell it for pennies on the Petro-dollar just for FUN.

 

Note: I am now the Central Banker of Central Bankers.

 

Resistance is futile.

RagaMuffin's picture

Watching the Fed is like watching a Drivers Ed class - and the kids are the ones with the skills....

Giant Meteor's picture

Or like watching paint dry. The difference is, paint and drying has utility. a purpose. I mean of course a purpose other than say, circle jerking ..

Silver Savior's picture

Come on. I need my dog to get a loan. 

Giant Meteor's picture

".... underreported area of concern is the sudden collapse in loan growth in general, and the all important Commercial and Industrial Loan segment in particular, a drop which the WSJ recently dubbed an "ominous economic signal" and blamed policy uncertainty under Trump for the collapse in growth."

You're shitting me right?

Blame Trump ? Well if that is the case, it just goes to the central point of our times. Its ALL BULLSHIT ALL THE TIME .. Cuz if the jawboning and "confusion" can lock up credit and loan creation, by the words, action, or inaction of one man, who lets face it, ain't exactly been around a whole long time, if this ONE man can create such havoc in the "capital markets" and loan creation, well I suggest to you, there are no "markets", no capital and really, nothing of any particular note ...

Oh, snapchat you say, facebook and fucking twitter you say, the dead in the water fake ADVERTISING model .. I rest my case,

And oh, by the way, the same rule applys as to taking credit for meteoric elevations .. Again, if all it takes is a bit of jawboning of one guy, no further evidence is neccessary. Its all bullshit, All the time.

Winston Churchill's picture

Why is this a surprise.Most of these loans are 3 years or less at a fixed rate.

The FedRes huffing and puffing about three hikes in the next year would stop anyone lending.

11b40's picture

No where in the article is there any mention of tightening lending standards. With consumers tapped out, and many businesses seeing major slowdowns, would you be examining credit worthiness more closely if you were a lender?

silverer's picture

Lending standards? I think I remember hearing that term some years ago. Where did you come across it?

Chris88's picture

Every single middle market lending management team I speak to is drastically tightening standards.  Many of them are shying away from non-sponsor businesses and PE firms are starting to get major push back from them about leverage.  Deals are being passed on en masse now, absolutely.

Giant Meteor's picture

August 13, 2007

A majority of the nation's banks have tightened lending standards on subprime mortgages, the Federal Reserve said Monday in a survey that provided further evidence of the spreading problems in mortgage lending.

The Fed said it found that 56.3 percent of banks responding to a survey reported that they had tightened their lending standards for subprime mortgages, loans offered to borrowers with weak credit histories.

http://www.cbsnews.com/news/fed-banks-tightening-lending-standards/

August 12 2008

More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy.

The Federal Reserve said Monday in its July survey that the percentage of banks reporting tighter lending standards rose across various loan types. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near record highs.

The new survey found that about 75 percent of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60 percent of banks who said they were tightening lending standards for prime mortgages in the previous survey.

http://www.sfgate.com/business/article/Banks-keep-tightening-lending-sta...

February 1 2016

Over the past three months, banks reported easing lending standards and weaker demand for a variety of home loan types. In contrast, lending standards for C&I and CRE loans tightened amid strengthening fourth quarter demand, according to the January Federal Reserve Senior Loan Officer Opinion Survey.

Although the majority of banks did not change their lending standards, a net 8.3 percent of banks reported tightening standards for commercial and industrial lending to large and middle market firms, while a net 4.2 percent of respondents reported tightening standards for small business lending. Most respondents who tightened standards reported a less favorable or more uncertain economic outlook, as well as worsening of industry related problems in the oil and gas sectors. Some banks also attributed tightening to a reduced risk tolerance, decreased liquidity in the secondary market for loans, and increased concerns about the effects of legislative changes or supervisory actions.

A moderate net fraction of banks reported easing standards on GSE-eligible mortgage loans, while a modest net fraction of banks reported having eased standards on qualified mortgage loans. Despite an easing of standards, a moderate net fraction of banks reported weaker demand across most mortgage categories.

http://bankingjournal.aba.com/2016/02/commercial-lending-standards-tight...

Chris88's picture

I was speaking specifically about middle market leveraged loans, not sure what point you're trying to make by reposting old news clippings regarding (mostly) residential real estate.  Care to clarify?

Giant Meteor's picture

Your original post stands on its own merit, yes I agree there is a "tightening" on the types of leveraged loans that you were addressing due to a lack of demand and also increased scrutiny. You are correct the links I posted are not relevant to the point you were addressing, and were off that topic on that point.

On the other hand, I found the look back regarding the residential real estate, "credit crisis", then and a look at where we are at now somewhat interesting. "Tightening" in commercial real estate, and an incease in related defaults in that market, as well as other bubbles, autos, education, and yes real estate in select markets, I believe when taken together in toto, tell the tale.

I believe we are at a point soon of more, massive, defaulting ..

What seems to occur every time, is the barn door ALWAYS gets closed, after the horses have already gotten loose (the brakes)

In other words, this latest FED Frankenstein creation, in my opinion, is about played out ..

edit, apologies as well. Must have gotten up on the wrong side of the bed today ;)

 

 

Chris88's picture

Sure, there's usually people late to the party who are tightening after the fact (already have seen that in 2016).  I don't see how we have massive middle market/BSL defaults when there is only 6.5% of the market maturing this year and not to mention in the covenant-lite BSL market there is less room for technical default.  2018 seems more likely for this.  CRE is ripe to keep gettting screwed given what's going in retail and mutlifamily in large coastal cities is a bubble, but then again if you look at industrial CRE that's a different story where if anything defaults probably will trend lower.

wmbz's picture

Yea, the un-fed will turn on a dime and reverse these unfair sky rates, that we are suffering under now!

I demand even more "free" money for Banksters Inc. Now...Damnit!

pitz's picture

The Fed, duh.  Doesn't stop the dummies from deluding that higher rates will 'help' the banks.  Of course, those who watch CNBC will get what they deserve.

Consuelo's picture

 

 

 The reoccurring theme seems to be that although there has been real spending and real growth - long enough to make it seem 'organic', the fact remains that the economy as a whole, right here-right now, cannot survive without cheap $money, and a steady flow of it by any means necessary - up to & including monetary transmission mechanisms that remain 'under the radar' of mainstream reporting.   No...?  

hotrod's picture

Debt MUST grow or money supply contracts.  All this money for College was not about altruism and caring for our kids.  The entire Federal Government paraded the program that all kids must have college because it would create a HUGE source of debt creation loaded on the backs of students.  It has injected 1.4 trillion into the economy.

Remember with Clinton and into Bush everyone deserved their own home. Well that was also about creating debt and not about whatis right for people.

Bricker's picture

Now that Obamas money is spent, consumers have become exhausted and cant lease any more cars, buy more home, or cover the utility cost as they pay down the college tuition loans.

A. Boaty's picture

Maybe this will reduce the number of businesses that only exist because easy money.

silverer's picture

Maybe? Like using a typhoon to shake an apple tree.

hairball48's picture

Do  my fellow "Austrian" ZHer's believe that the monetary geniuses running the world today will ever learn:

Fiat money/credit is not the equivalent of "real wealth".

?

hairball

Chris88's picture

Not many Austrian here man, they all support socialism wrapped in a flag and protectionism.  This is not a capitalist crowd.

silverer's picture

I can hear it now from management to middle management: "Hey John, no more loans, we are on the brink, they'll never get paid back. Focus on collections."