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Bank lending continues to increase

The good news about bank lending just keeps on a comin'. I've been featuring this chart for most of this year, and regularly get comments that challenge its message. Despite the popular perception that banks aren't lending, and despite the fact that many small and medium-sized businesses can't seem to get their bankers to lend them some badly-need money, banks are nevertheless expanding the amount of loans to small and medium-sized businesses, as this chart shows. C&I Loans outstanding have grown at about a 10% rate since late last year.

The important thing is not that more loans are going to create more GDP, it's that more loans are the result of an increased desire on the part of banks and businesses to take on more risk. Risk-aversion was one of the things that contributed significantly to the 2008-9 recession, so a move towards less risk-aversion is likely to help the economy improve.

To put things in context, though, a 10% increase in this type of lending only amounts to a drop in the bucket. Banks are sitting on $1.6 trillion of excess reserves, which means they could—if they wanted to, and could find willing borrowers—expand their loans by many orders of magnitude more than they have to date.

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