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Bank lending accelerates




Commercial & Industrial Loans are a good proxy for bank lending to small and medium-size businesses, the kind that aren't big enough to access the credit markets directly through bond issuance. Contrary to popular belief (i.e., "banks aren't lending" despite all the reserves they have on tap at the Fed), bank lending has been picking up ever since hitting a low in September 2010. Since then, banks have increased their outstanding loans to businesses by $140 billion, with loans growing at a 13.8% annualized pace over the past three months, and at a 12.5% annualized pace over the past six months. This is a very positive development, not because bank lending per se creates new money or increases demand, but because it reflects increased optimism on the part of banks and businesses—banks are more willing to lend, and businesses are more willing to borrow.

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