Unusual Credit Trends In Commercial Banking

Fractional reserve banking is like a shark, credit must continue to expand (swim) or it faces death. This explains the unprecedented panic, as reflected by the speed and magnitude of the coordinated quantitative easing, to unclog the credit markets and restart lending process.

Credit creation is clearly stumbling. Commercial banks are beginning to hoard cash and treasury securities while critical sub sectors such real estate (including home equity) and consumer loans’ contribution to total bank credit continues to shrink. The red boxes below illustrate new swing lows in their percentage contributions since the onset of the crisis in 2008.

Why are commercial banks still aggressively hoarding cash assets (equivalents) and treasury despite the end of the Great Recession in 2009? Perhaps, there’s more or less to this economic recovery than advertised.

Total Bank Credit, All Commercial Banks.