Bank Balance Sheets Balloon, but Lending Does Not

The biggest U.S. banks reduced the portion of their collective balance sheets they’re dedicating to loans to a new low, extending a trend that’s seen the largest lenders put less and less of their firepower behind everyday borrowers.

Total loans at the 25 biggest U.S. banks comprise less than 46 percent of their combined assets, down from 54 percent this time last year, according to weekly Federal Reserve data made public on Friday. At 45.8 percent, the share of total assets devoted to loans is the lowest figure in nearly 36 years of weekly data.

The figures provide a fresh reality check for an industry that’s been playing up its support for businesses and households as the Covid-19 pandemic ravages the economy. While the total amount that banks have loaned out has stagnated, the nation’s biggest lenders have rapidly expanded other parts of their businesses, such as their holdings of Treasuries and government-backed mortgage securities.

Loans fell just over 1 percent last year, to $5.5 trillion, a figure that includes new loans ultimately backed by the U.S. Small Business Administration (SBA). At the same time, big-bank balance sheets expanded by more than 17 percent, to $12 trillion, after the Fed flooded the system with cash in hopes that firms would keep credit flowing to the U.S. economy. Banks have kept some of those funds as cash and used much of the rest to purchase securities guaranteed by the federal government.

Lending has faced scrutiny during the pandemic as banks retrench, and small businesses and households find it harder to obtain reasonably priced credit. Large, publicly traded corporations have largely relied on bond markets to provide needed credit. Loans began accounting for less than half of big banks’ books for the first time last May, and in the 35 weeks since then lending has fallen to a fresh low 21 times.

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