Credit Crunch Is a Sham

In looking to answer the credit-crunch question, I closely follow data released every Friday at 4:15 p.m. ET by the Federal Reserve on the assets and liabilities of U.S. commercial banks. I've been reporting on them for a long time, mostly to assess the pace of economic growth, but I changed my focus when the credit-crunch question started to garner more attention.

These data are an excellent gauge of whether any change in lending conditions is occurring. In this report, the Fed sums up the total amount of money extended by the nation's commercial banks to individuals, businesses and government entities via loans, leases and securities purchases. The data are comprehensive, meaning that if the problems in the subprime sector are broadening out, this will be obvious in the data.

The newest data released Friday squash the idea that a credit crunch is developing in response to recent subprime problems. The Fed's data show that bank credit expanded strongly in the week ended March 7, increasing $23.9 billion to $8.437 trillion. The rise follows other large gains over the previous five weeks, which saw bank credit expand at a 13% annual rate, which is faster than last year's gain of 11% and 2005's gain of 10%.

Interestingly, recent increases in bank credit have been partly the result of steady increases in real estate loans, which reached a record $3.381 trillion in the latest week.

In addition to these data, it is notable that bond issuance has been very robust over the past two weeks, with issuance running several times the normal levels. Hence, many entities are looking for money (many of these have been financial companies), and investors have been very willing to give it to them.

This wouldn't happen if there were a credit crunch. For now, that concept is still a sham.