Bank Loan Creation Crashes At Fastest Pace Since The Financial Crisis

Tyler Durden's picture

Last weekend, after looking at the latest H.8 statement by the Fed, we noted something concerning: total loans and leases by U.S. commercial banks were 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. This deceleration has prompted numerous questions about the sustainability of the recovery, and led the WSJ to noted that the slowdown, "is at odds with the idea of a stronger economy and rising sentiment."

But the slowdown was 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, had unexpectedly slowed to just 4.0%, 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.

Fast forward one week, when after the latest update to the Fed's latest weekly commercial bank loan data, we find that the trends have deteriorated substantially.

As shown in the chart below, after growing 4.6% one week ago, total loans and leases grew only 4.2% in the week ended March 8: the lowest growth rate since May 2014. However, it was once again the Commercial and Industrial loans creation - or lack thereof - which was more problematic, because after growing 4.0% on a year over year basis as of March 1, and 5.7% one month ago as of February 8, the growth rate has since tumbled to just 2.9%, a 1.1% decline in the growth rate over the past week.

As shown in the chart below, on a cumulative 4-week basis the slowdown in C&I loan creation tumbled by 2.8% as of the latest period: this was the biggest monthly slowdown going back to the financial crisis.


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 of just 4.9% Y/Y, or half what it was as recently as last September, when Ford ominously warned that the US auto market had plateaued.

As we noted last week, 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.

Finally, to revise our forecast from last week, when we said "C&I loan growth may turn negative Y/Y within a few months" it now appears the inflection point can hit within the next few weeks, and since historically US economic growth has been a function of easy bank credit, should the recent drop not be arrested, the Fed may have no choice but to reverse its tightening course in the very near future.

Source: H.8

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Croesus's picture

Inflate or Die!

GUS100CORRINA's picture

These charts make perfect sense to me.

Just look around at the 'real' economic data like that data supplied by or other reliable sources.

I know what the politicians want, but what is the real TRUTH?


=== Shadowstats Latest News ===

Posted March 18th, 2017 at 2:42 PM (CST)

The latest from John Williams’

- Industrial Production May Be Bottoming, Yet, There Are New Signals of Intensifying Economic Risk

- Production Was Flat in February, Minimally Positive Year-to-Year, with Gains in Manufacturing and Mining Offset by Weather-Distorted Utilities

- No Economic Expansion: Activity Held Below Pre-2007 Recession Peaks, with Production Down by 0.94% (-0.94%), Manufacturing Down by 4.97% (-4.97%)

- Major Downside Revisions to Production Activity of Recent Years Likely Loom with the March 31st Annual Benchmarking Going Back to 1972

- General Outlook Remains in Place for Continuing Near-Term Economic Stagnation and Renewed Downturn

“No. 874: February Industrial Production, Updated Economic Review”


Posted March 15th, 2017 at 2:42 PM (CST)

The latest from John Williams’

– FOMC Fiddles with Boosting Interest Rates, While Annual Real M3 Growth Just Plunged to a New Signal for a Major Economic Downturn

- Annual Contraction in First-Quarter Real Earnings Is a Virtual Certainty; Back-to-Back Quarterly Contractions Also Are in Play; Circumstances Not Seen Since the Stalled GDP of Second-Half 2012

- February Nominal Retail Sales Gain of 0.08% Was Less than Inflation; 

Inflation-Adjusted Real Sales Declined by 0.04% (-0.04%) for the Month

- Headline Annual Inflation Surge Has Been Due to Energy-Price Distortions, Not to an Overheating Economy

- February 2017 Monthly CPI Inflation Rose by 0.12%, Pushing Annual CPI-U Inflation to a 60-Month High of 2.74%, with CPI-W at 2.82% and ShadowStats at 10.5%

- February Final-Demand PPI Annual Inflation Hit a 59-Month High of 2.19%

“No. 872: February PPI, CPI, Retail Sales and Earnings and the FOMC”

Manthong's picture

OK, let’s see now ….

The kids are broke..  car payments are more than a mortgage . and they live in the basement…

Their folks are broke.. paying for >$100K  tenured liberal wacko professors,  $Billion dollar facilities and 10 million/dollars per year pencil pushing college administrator staff…..

What could be wrong with this picture?

Well hell, state taxes and fees are skyrocketing because .Fed did not assure the funds were properly managed and the pensions are bankrupt.


OK… well how about God forgive us all, just like the bankers will.


hope_talk's picture
hope_talk (not verified) cossack55 Mar 19, 2017 5:37 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do...

cheka's picture

frbny has shown it will borrow and spend if nobody else will.  that's why deflationsts always lose

Honest Sam's picture

I hold all Variables, Constant. 

And I keep all Constants, Variable.

As a deconstructionist., I am then, never wrong. 

Smedley's picture

They're cutting the money off, bro!



Arnold's picture

It's ok.
Everybody is a little short of cash this time of year.

Giant Meteor's picture

Thanks for that ! First Belly Laugh 

Outstanding,! except for the coffe spit all over my laptop ..

Giant Meteor's picture

Jesus ! I just got done wiping up from the last spill !

Damn You !

Giant Meteor's picture

the Fed may have no choice but to reverse its tightening course in the very near future.

Is tomorrow good for you ?

Thinkpad's picture

It would be expected that lending would go down at the beginning of a tightening cycle. Why sell money now when you can wait a few months and get better return on your money? That's just being smart a asset/liability mgr. Most folks navigating in financial markets today have never experienced a rate increase environment by the Fed and it's consequences. do your homework. Secondly the Fed is not tightening it's merely normalizing rates BIG difference. Lastly how do you propose they control M2 of 13.27 trillion and it's consequences unless they stop pouring money into the system? 

Honest Sam's picture

If $13.2 Trillion falls in the woods, and no one hears it, did it really happen??

Unless all those trillions have fallen into some kind of billionaires only financial institution that only richest 1% know about, like Larry Fink's Black Rock, then were are.......uuhh....nevermind. 

Thinkpad's picture

M2 is expanded M1(cash) to include savings and money market accounts of households readily avalaible. Blackrock has 5.1 tril under management that most doesn't fall into category of M2 you dumbass do a little research first so you can have bragging rights to being a smartass as well. I'm sure it didn't happen in your mind since you are clueless what M2 is.

Arnold's picture

Full Faith and Trust in 1 s and 0 s.
(Shakes head.)

Statistical management of Economic data is reliable.
(shakes head.)

Your Governance is here to help you.
(Gives self concussion, due to head shaking.)

Thinkpad's picture

Careful thre's not much in there. Too vigorous of shaking and you may lose what little you have going on between your ears. Acorns rattling around in an empty vessel will cause a mild concussion with what little gray matter that you may have.

Whodathunkit's picture

Right like they have 3/4 of a point they can ease. Still haven't outlawed paper fiat so they can hardly go lower than 0%

VWAndy's picture

 Dont worry folks. The big players wont be running out of credit.

flaminratzazz's picture

Time to fill out every form for every bank card, max them out and go all in on rice futures.

pliny the longer's picture

flamin, i've long though u are onto something with this idea.  seriously, if u are in financial distress with little prospects of it getting better, a perfectly rational plan is to max out all credit card offers, convert half into holding of PM which promptly sinks with the boat and the other half lever x about 10 and u either make it big or suck wind.  if things go south, u just go bk, $ gone no identifiable assets.  

some may say this is fraudulent and unfair.  i'd say to whom, JPM?  Wells fargo?  i'd consider it a badge of honor and an act of courage.  not kidding.

Silver Savior's picture

Yeah I noticed banks are still very stingy with loans despite all the crazy money flowing. I don't know what they think they have to lose. They always win no matter what. I just want a loan to buy more silver to hedge against them.

flaminratzazz's picture

No shit, they sure as hell aint handing out 25,000 dollar cards like they were in the early 20's.. Taking me awhile to amass some free money since i fvked them for 90 grand in 2004..

 up to about 45 thousand tho and will have to take them for what ever they will hand out right b/4 i retire..

oh such is life when all you have is to fvk over the money changers.

Silver Savior's picture

All I have to say is the banks deserve every bit of that. 

DingleBarryObummer's picture

That's probably why helicopter money won't happen.  By then most people will be awakened to what real money is, and will just hoard it.

Honest Sam's picture

Neither cure your rage and fury; nor dim your grin.

wmbz's picture

I over heard a conversation between two women exiting a late model 2014/15 chevy pick-up in a parking lot the other day.

One says, lets get lunch. The other says, can't. Just made the truck payment and only have $30.00 to last me until next week.


sinbad2's picture

I bought a car on credit once many years ago. I have never made that mistake again.

foodstampbarry's picture

Niggas be broke these days.

wisehiney's picture

Sit tight and be right.

Get paid to wait.

the late idi armin's picture

Wondered why I was getting calls from my bank asking if I wanted to refinance.

Silver Savior's picture

Just remember that silver and gold are constant!

Catullus's picture

Here's the trend I've been noticing: new CFO takes over at a company, immediately asks all the procurement people to ask their suppliers for 60-90 net payment terms. Doesn't matter the creditworthiness. The procurement people don't even like asking, but they are. Even companies that have been paying bills within 3 days of receiving an invoice. 

The answer is always no from me, but then again they don't have me by the balls like I know they do other vendors....

Miss Informed's picture

So much credit! So many willing lenders! So much shit I don't need or even want!

Ghost who Walks's picture

This is not a good look.

If you think the work of any economist can accuratley predict the future economy, then pay attention to Steve Keen's previous work which has shown a very high correlation between the reduction of the rate of growth of credit and unemployment. This correlation is about 0.91 which doesn't allow much ambiguity as to future outcomes.

He has shown that credit is a very significant component of aggregate demand.

When I read the commentary from other ZHers about the US population being tapped out for credit and cash to service debt, combined with this clear chart, I can draw the conclusion that there will be an economic downturn. Apparently the probability of this is better than 90% based on previous economic history. What I don't know is how deep the downturn will be.

But again based on commentary and data that shows the levels of private debt across various countries, I can infer that this will be a very big downturn as China and the US are both positioned badly.

ds's picture

So long the reset is not one of a debt jubilee for the 99%, this '' will drag on with a 'lost generation'. Japan's 25 years struggle is a harbinger of what will be a greater circus. The preys will be the luck of the draw in the experiments of the IYIs and the no SITG charlatans. The 1% know how to preserve their wealth and fewer worries for them as they trade the cycles and invest only when the devastaions are complete. 

Read Steve Keen if you are interested in delving on the the critical impact of credit decline in debt peaked economies.