This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Banks Aren't Lending

NEW YORK (TheStreet) -- Banks aren't lending enough to get the economy moving. In an effort to understand why, I spoke to three people with different points of view who are smarter about these issues than I am.

The Federal Reserve shows banks have an astonishing $2.3 trillion in excess reserves -- that is capital available for lending but merely sitting on bank balance sheets. Prior to the financial crisis, that figure was at about $1.5 billion.

I started with Richard Bove, a bank analyst at Rafferty Capital Markets. Bove has been outspoken in his view that U.S. banks are overregulated in virtually everything that they do. He recently argued that fines against JPMorgan Chase (JPM) amounted to government "extortion" of the bank's shareholders.

This overregulation, in Bove's view, is what is keeping banks from lending.

"The government, through a series of capital restraints are forcing the banks to have an unusually large amount of liquidity," Bove says. He points to rules including Basel 3, as well as a supplementary leverage ratio for big U.S. banks like JPMorgan, Bank of America (BAC), Citigroup (C) and Wells Fargo (WFC), among other requirements that force banks to have a larger portion of capital in cash or cashlike instruments, which means it isn't available for lending.

Bove says the U.S. banking system was fine for 75 years without such strict capital rules. The last time rules were so strict, he argues, was in 1938, which helped extend the Great Depression.

Dan Alpert, a banker at Westwood Capital, says banks aren't lending "because there aren't any creditworthy borrowers to lend to that haven't already borrowed all the money that they need. They're trying to lower their lending standards a little bit because business has fallen off a cliff, but there's a limit to how much they can lower their standards without a.) losing money and b.) inciting the regulators."

Michael Barr, a University of Michigan professor who was the U.S. Department of the Treasury's Assistant Secretary for Financial Institutions from 2009-2010, points to an uncertain outlook for the economy which he believes makes businesses reluctant to borrow and banks reluctant to lend, as well as uncertainty over whether Congress will raise the federal borrowing limit. He doesn't think higher capital requirements are holding back lenders, in part because they don't fully kick in until 2019.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,912.11 -70.48 -0.42%
S&P 500 1,969.95 -8.96 -0.45%
NASDAQ 4,442.6980 -2.2110 -0.05%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs