If Foreigners Are Lending, Can U.S. Banks Be Far Behind?Gene Koretz
There is now "at least some hope that the worst of the bank credit crunch may be over," says William V. Sullivan Jr. of Dean Witter Reynolds Inc. The money-market economist notes that while total commercial bank credit expanded at a modest 3.2% annual rate in September, commercial and industrial loans rose for the first time in six months, hitting a 6.7% annual clip. Indeed, the $3.4 billion gain in the C&I category was the largest in 23 months.
Thus far, however, the pickup in business lending has occurred exclusively on the balance sheets of foreign-related banks, which added $4 billion in c&i loans in September. With regulatory restraints apparently inhibiting business lending by big U.S.-chartered commercial banks, foreign-chartered institutions are continuing to gain market share-accounting for 23.1% of all c&i loans extended in September, compared with 19.2% a year earlier.
Still, Sullivan thinks there's a fair chance that U.S. banks will soon follow the lead of their foreign competitors by accelerating business lending. And if they do, he adds, there's also a risk that intermediate and long-term interest rates could be pushed higher. That's because any surge in c&i loans by the banking sector may well be accompanied by a cutback in its appetite for federal debt-just at a time when the Treasury's cash needs will be rising sharply.