Lisa Abramowicz is a Bloomberg Gadfly columnist covering the debt markets. She has written about debt markets for Bloomberg News since 2010.

Everyone is supposedly feeling good in the U.S.

Consumers are comfortable. Confidence among chief executives is high. Unemployment rates are down, and pay is ticking up. As a result of the new optimism, investors are plowing into stocks and riskier corporate debt.

Given this rosy backdrop, it’s a bit incongruous that big banks appear to be getting more and more skeptical about lending to both individuals and businesses. They reduced the amount of outstanding commercial and industrial loans by the most since 2010 in the week ended March 8, according to Federal Reserve data released late Friday.

Sudden Drop-Off
After years of steady credit expansion, banks are starting to pare their loan books
Source: Federal Reserve

While this may be an idiosyncratic blip in the data, it follows weeks of little growth at all in that measure of credit. One belief, highlighted by Bloomberg's Robert Burgess on Monday, is that companies are issuing so much longer-term debt through the corporate-bond market that they're quickly paying down floating-rate loans at banks.

There's likely some merit to this, but it doesn't fully explain the recent accelerating decline in bank loans. Big corporations have been selling record amounts of bonds for years, demonstrating a preference for longer-term debt over shorter-term obligations.

Not only that, but big financial firms have generally been tightening their credit standards for big and small American companies as well as consumers, according to Federal Reserve surveys.

Tightening Up
U.S. banks have been requiring higher standards from companies looking for a loan
Source: Federal Reserve

This makes perfect sense given the fact that big corporations are increasing their debt at a faster pace than they've increased their incomes, making them more vulnerable to downgrades and defaults. On the consumer side, banks are tracking more delinquencies and losses on credit card and auto loans.

Racking Up Bills
Credit card lenders increased charge-off rates by the most since 2015 in February
Source: Bloomberg Intelligence

Banks are apparently being prudent with respect to how they lend, which is commendable. But it challenges some recent assumptions. First of all, it raises questions about the wisdom of piling into riskier bonds and stocks, which is exactly what individual investors have been doing since the start of the year.

Risk On
Individual investors have been plowing into riskier stocks and bonds this year
Source: Bank of America Merrill Lynch research

And second, it undercuts the concept of "animal spirits" that have ostensibly been driving markets since the U.S. election in November. Supposedly, President Donald Trump's policies of lower corporate taxes and fewer regulations would ignite a virtuous cycle of companies investing in new plants, new workers and new products, generating growth.

But that's not happening yet. Instead, while Trump wanted banks to lend more, they're apparently lending less.

While these indications don't necessarily point to an imminent recession, they do highlight concerns that aren't reflected in many lofty stock and bond valuations. Banks appear to be pulling back on several fronts while mom-and-pop investors keep plowing into riskier securities. It's worth pausing to wonder what banks know that many investors seem to be ignoring.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Lisa Abramowicz in New York at

To contact the editor responsible for this story:
Daniel Niemi at