Do You Know The Real Reason That Banks Aren’t Lending?

Do You Know The Real Reason That Banks Aren’t Lending?

Ok, I’ll tell you. Banks only want to lend money to people they know can pay them back. It’s a very simple premise. Without a borrower being able to show the willingness and capability to do so, there can be no loan. You don’t have to be an MBA to figure that one out.

A very interesting article published over on HuffPo talks in great detail and provides a very unique perspective as to why were not seeing more banks loosening their purse strings, despite being bailed out by the government.

Warning, the article is quite technical and the insight it provides allows for great thought into the economic processes that may be the result of a government that has reached the point of diminishing returns in regards to its ability to bolster a flailing economy.

In the U. S., when a bank makes a loan, this loan creates a deposit for the borrower. If the bank then ends up with a reserve requirement that it cannot meet by borrowing from other banks, it receives an overdraft at the Fed automatically (at the Fed’s stated penalty rate), which the bank then clears by borrowing from other banks or by posting collateral for an overnight loan from the Fed. Similarly, if the borrower withdraws the deposit to make a purchase and the bank does not have sufficient reserve balances to cover the withdrawal, the Fed provides an overdraft automatically, which again the bank then clears either by borrowing from other banks or by posting collateral for an overnight loan from the Fed.

What is required to drive lending is a creditworthy borrower on the other side of the bank lending officer’s desk, which means an employed borrower, whose income allows him to sustain regular repayments. Absent that, there will be no lending activity.

That’s pretty much case closed. How can we possibly expect the banks to lend money when there are not enough credit worthy borrowers? And you don’t get credit worthy borrowers unless they have assets and a history of debt repayment…which means they need to have sustainable income.

With unemployment so high and with so many of those who ARE working doing so in jobs with no work history and at a lower level of income, you can see how we may be seeing some real credit problems for quite a while.

Check out the entire article here.

Here’s The Real Reason Banks Aren’t Lending: Americans Just Aren’t Creditworthy What is required to drive lending is a creditworthy borrower on the other side of the bank lending officer’s desk, which means an employed borrower, … 

The Real Reason Banks Aren’t Lending What is required to drive lending is a creditworthy borrower on the other side of the bank lending officer’s desk, which means an employed borrower, …