Banks Are Hoarding So Much Cash That You Could Cut It In Half, And It Would Still Be Way Too Much

The Business Insider ^ | 2-18-2010 | Vincent Fernando

[blam]

Banks Are Hoarding So Much Cash That You Could Cut It In Half, And It Would Still Be Way Too Much

Vincent Fernando
Feb. 18, 2010, 1:52 PM

We probably all know by now that banks are 'hoarding' cash and not lending 'enough', which may or may not be a good thing.

After all, some conservatism is warranted, and the higher their cash buffers, the easier and sooner one can make an argument for government support to be removed.

Yet this graphic from the Economist Intelligence Unit to the right shows just how much cash banks have been holding in relation to their loans. The spike shown is obviously a function of both cash being kept and a reduction of loans outstanding. Note how it has jumped to a higher level than even during the 1970's.

Economist Intelligence Unit: A steady decline in the ratio of cash to business loans—from around 60% in the 1970s to a low of 20% in late 2008—has reversed sharply over the past year. According to Federal Reserve data, banks hoarded an all-time high of 98 cents in cash for every dollar of existing corporate loans during the week of January 13th. The latest reading, for the week of February 3rd, stands at 95 cents.

Thus it's clear that bank's could slash this cash-to-business-loans ratio by half and still be well above any level they maintained during the 1980's, 1990's, or 2000's.

[snip]

[Lurker]

They’re afraid of the coming runs and they’re preparing for them as best they can.

[Steamburg]

This doesn’t exactly seem like it will last, based on the most recent inflation figures. Banks prefer to make money, not watch it evaporate. International Loans in say Asia?

[VRWCmember]

How much of that spike is because of all the business loans that were written off as bad debt, or bought as toxic debt in the financial bailout?

What does the author suggest the banks should do with the cash? Give it back to the government? Pass it out in the form of more bad loans?

[Touch Not the Cat]

.
The coming inflation WILL cut it in half over the next 20 years.

[perfect_rovian_storm]

They’re going to eventually need this money to make good on the debt they are hiding in their cooked books.

[C19fan]

Exactly. Banks are hoarding cash because of the non-performing loans on their books and it is an easy guaranteed profit borrowing from the Federal Reserve at zero and buying Treasuries earning 3%.

[pallis]

Maybe the hording is just puzzlement over what to do in an Obamao economy. It could also be that fewer legitimate borrowers are asking for loans. People are trying to pay down debt, and ride out the storm.

[Parley Baer]

I would say they know Obama’s policies are a disaster and are preparing for the future.

[Check6]

Maybe no one wants to borrow.

[mulligan]

With the current administration’s policies and programs why would a bank lend to anyone? Only ‘stupid’s’ would try to keep up with an ignorant, incompetent, spendthrift, hate America and destroy the Nation group of thugs.

[Tarpon]

They are watching the ongoing small business failures and don’t want to contribute.

[Lurking in Kansas]

This is NOT bad.

[Roccus]

Well, they ain’t hoarding mine. I’m doing that myself. :)

[autumnraine]

This can’t be true! Why I’ll bet there are at least three Freepers who will explain how they just got a loan for a new car a few days ago and so there is no way banks are hoarding cash!!

At least that was the posts I got when mentioning this a few weeks back.

[rightwingextremist1776]

Oh don’t you worry ‘bout a thing...the gooberment will make sure none of the money goes to waste....all they have to do is tax it and it will all disappear in no time....

[Nosterrex]

This is another example of what happens when the government gets involved in economics. This is where our tax dollars are going. We bailout the banks with our tax money, and the banks horde it, or they loan it out to us with interest. I am certain that these banks appreciate the stimulus. This is the so-called jobs bill.

[jiggyboy]

What does the author suggest the banks should do with the cash? Give it back to the government?

That is exactly what they are doing. Just another shell game at the taxpayer's expense. Oh, and at the expense of qualified people who want to borrow money, which is what banks are supposedly for.

[svcw]

How did they do that?
Two months ago my husband and I tried to borrow money to buy a house. No dice.
We have credit scores in the 800s, no debt, he has been on the job 30+ years and 20% down. Why you ask because he changed jobs (same field) and didn’t have six months of pay stubs for the new job.
The leander did tell me straight out if our scores were in the 600s and we had no down or a small one we could get a loan - per Fanny May and Freddie Mac.