Lending By Bailout Recipients Is Down
Treasury Reports On Largest Banks

By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, February 18, 2009

The largest U.S. banks reduced the availability of money for consumers and businesses during the final months of 2008 even as the government invested tens of billions of dollars to help them make new loans, according to data released yesterday by the Treasury Department.

The banks that got the most government money, Bank of America and Citigroup, led the retreat. Mortgage loan originations by the two companies in December fell $3.6 billion, or 15 percent, compared with October. New lending commitments to commercial and industrial customers dropped by $2.4 billion, or 11 percent. And the companies reduced the collective spending limit of their credit card holders by $45 billion, about 2 percent.

But the overall decline in lending was modest as some large banks even posted small increases. The data underscores that banks are responsible for only a small part of the overall decline in lending, which is mostly the result of the collapse of rival industries such as mortgage lenders, small-business lenders and Wall Street, which before the crisis collectively provided more than twice as much financing as banks.

The Treasury released lending data for the last three months of 2008 from the 20 largest banks that got taxpayer money as part of the government's financial rescue program. The data is part of a broader effort to increase transparency and accountability. The Treasury chose to focus on the largest banks, which together got more than $206 billion, or more than two-thirds of the amount invested so far, rather than requiring reports from all of the more than 350 banks that received money.

Treasury officials urged caution in drawing conclusions from the decline in lending. They argued that much of the decline is the result of a recession that has reduced customer demand and diminished the creditworthiness of many borrowers. Furthermore, they say, the proper baseline for measuring the government's investments is how much lending would have declined without public aid, something it described as impossible to determine.

Still, the Treasury issued an analysis with the data that reiterated the judgment of senior officials that the investments are working.

Lending "levels would likely have been lower had Treasury not taken actions to stabilize the financial system," the analysis said.

Representatives of the banking industry also viewed the findings as a favorable report card, noting that lending increased across the board from November to December.

"In the wake of the financial crisis, our banks are lending," said Steve Bartlett, chief executive of the Financial Services Roundtable.

But the December numbers remained generally below October levels, a trend that is likely to fuel renewed demands from members of Congress and consumer advocates that the banks must take new steps to increase lending.

The data present a complicated picture for each bank. For example, most companies reported that outstanding credit card balances increased as customers took advantage of borrowing limits. Companies also continued to issue large numbers of new cards. At the same time, most credit card lenders sharply reduced the amount that their cardholders are allowed to borrow. The combination reflects a short-term increase in lending but a long-term decrease in the availability of loans.

Citigroup, for example, reported that outstanding credit card balances grew by about $800 million, but it reduced total available credit by almost $37 billion.

Similarly, many banks increased lending in selected areas. Citigroup, which has a relatively modest business in lending to commercial and industrial companies, increased its volume of new loans by about $2 billion in December. Bank of America said it was making more auto loans, which it attributed to the struggles of the financing arms of the major car companies.