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TARP Recipients Slow Down Lending

Source: WSJ

Posted on 16 Apr 2009

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The Treasury Department said Wednesday that the largest bank recipients of U.S. government aid are offering less credit to businesses and consumers, reflecting and exacerbating the tenuous state of the current economic environment.

In a monthly snapshot of lending by the 21 largest banks receiving Troubled Asset Relief Program (TARP) funds, the Treasury said credit being offered fell 2.2% across all commercial-lending and consumer-lending categories in February, compared with the prior month.

Particularly problematic: Continued deterioration in commercial real estate and general business lending, as well as the credit being made available for student and auto loans.

The lone bright spot remained home loans, with consumers eager to take advantage of record-low interest rates to refinance their mortgages.

The Treasury said 16 of the 18 banks surveyed increased mortgage originations in February, resulting in a 35% increase in mortgage lending from January levels.

The February decline in lending adds to pressure on the Obama administration's efforts to restart the still-fragile credit markets.

The Treasury has committed $95 billion in TARP funds for new programs to boost consumer and business lending, though they are either just getting started or are still in the development phase.

The report suggests that jawboning by federal officials for banks to use TARP funds to boost lending is having a limited effect.

The Treasury blamed the decrease on the broader economic weakness, including low consumer confidence, high unemployment and a decrease in U.S. exports.

It also said lending would have been lower absent the nearly $200 billion in capital injections the government has provided to about 550 banks.

Banks' diminished appetites for lending are forcing businesses and consumers alike to curb their spending, which risks prolonging the U.S. economic recession.