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| Source: The New Arthurian Economics |
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| Source: The New Arthurian Economics |
*rough, ballpark calculation just by eyeballing--- 1985 about $1.7T and in 2011 about $6T..$6T/$1.7T = 3.529 x 100 = 353%
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Thursday, June 30, 2011
Since 1985 there are 50% fewer banks in the US making 350% more in loans*...Nothing can go wrong there, right?
The first graph below shows the change in the number of commerical banks in the US since the mid-1980's. I was quite surprised by the rapid decline in a relatively short period of time. Roughly a 50% drop. The slope is pretty steep considering it only represents 25 years. Another interesting thing is that it appears recessions did not hasten the decline, which you might expect as some banks would fail--the decline just slides through the recessions like they never happened (post-2009 migth be the exception).
This next graph shows the growth in loans in Commericial/Industrial Loans (Business Loans for expansion, Capital Purchases, Accounts Receivables, etc), Real Estate (residential and commercial properties) Loans and Loans to Consumers (Cars, Credit Cards, Student Loans, etc). Prior to 1985 banks were balanced in there portfolios of loans to these three sectors. After 1985, there was a dramatic shift towards Real Estate loans. Starting in the mid to late 1990's the Real Estate loan line (Red) becomes VERY steep and banks portfolios become very unbalanced (numerically and perhaps psychologically, too-- :) ).
What happened during the period between 1985 and the late 1990's that set in motion (1) the decline in the number of banks and (2) the rapid increase in the number/value of loans made? Hmm...fewer banks making more loans...nothing bad can happen there, right?? Yes, Art, you can play along too and correct me as needed :)
*rough, ballpark calculation just by eyeballing--- 1985 about $1.7T and in 2011 about $6T..$6T/$1.7T = 3.529 x 100 = 353%
*rough, ballpark calculation just by eyeballing--- 1985 about $1.7T and in 2011 about $6T..$6T/$1.7T = 3.529 x 100 = 353%
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Oh -- Nice, Gene, the way you put those graphs together! Like you, I was surprised by the decline in number-of-banks. Then I remembered that in the crisis, part of the solution was to merge weak banks into strong ones, leaving us with fewer, bigger banks. C'est la vie.
ReplyDeleteNow... the second graph. I missed this totally until I read over your remarks a few times. But yes, definitely: "after 1985, there was a dramatic shift towards Real Estate loans." In other words, since 1986 (when the tax deduction for interest expense other than mortgage interest was eliminated) there has been a lot more growth of the loans that still had tax-deductible interest. Like clockwork.
Why the growth in the mid- to late-1990s? I have been assuming that the above-average economic growth of those years required above-average purchasing power, which we generated with the above-average borrowing that the graph shows.
But now I hesitate, wondering what else might be involved.
Good post.
Art
Art--I forgot about the deductability of interest, especially for credit cards. I suppose that help keep consumer loans in check to a large extent. I probably focused on the mid-late 90's too much and did not see the forest for the trees. The steep increase in the real estate loans after 2000 just explodes relative to the other types of loans. Much has been written as to why--loose fed monetary policy, Fannie and Freddie, the Community Reinvestment Act (CRA), Barney Frank, Pres Bush, Wall Steet, me wanting to buy more house than I can afford, etc. I am not bright enough to know the answer, but something tells me it is a combination of all of the above.
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