“No doubt, the ongoing economic recovery has worked favorably for some bigger banks that have shown clear signs of stabilization. But many smaller banks are still tottering on the edge of disaster.”
I read a report in WSJ this morning, talking about this looming problem.
The report discussed how small and medium size banks have traditionally done their biggest lending volume in the form of lines of credit to small and medium size businesses.
The report also talked about how inter-bank lending was critical to taking the risks that the smaller banks have to take; securing funds through inter-bank lending at less expense than would be the case if they had to issue knew public debt instruments.
The report also talked about two other pieces: (1) the billions that the Fed has fed into the major banks, and continues to feed into the major banks, through its “overnight” window and near zero interest rates, but: (2)how inter-bank lending from the major banks to the smaller and medium size banks is lower now than anytime since 2006-7.
The major banks “cash” balances are growing handsomely on easy money, but small businesses and small banks are not participating in the Fed’s increased “liquidity” injected into the banking system, as it is predominately injected into the major banks who are keeping it, not lending it; particularly not lending it to the smaller and medium size banks - the banks that do most of the lending to small companies.
The Obama economy at work.