Photographer: Julia Schmalz/Bloomberg

Bankers Advising Fed Board See No Trump Bump in Bank Lending

  • Post-election rise in sentiment not matched by credit growth
  • Bankers looking for legislative action on reform agenda

Bankers advising the Federal Reserve Board said a lack of follow through in the Trump administration’s economic agenda has resulted in slowing credit demand despite high levels of sentiment.

“The post-election expectation was that the gain in confidence and financial market deregulation would spur credit creation,” according to minutes released by the Federal Reserve Board of its Sept. 8 meeting with Federal Advisory Council. “While consumers and businesses remain optimistic, that has not translated into significant growth in loan demand.”

The Trump administration has used executive orders to move its deregulatory agenda forward, but hasn’t been able to pass legislation overhauling health care or the tax system.

The Federal Advisory Council is as old as the Fed system itself. President Woodrow Wilson dictated the outlines of the council to Congressman Carter Glass as he was framing the Federal Reserve Act. The intent was to keep the politically appointed board in Washington in touch with bankers and business conditions. There is a banker from each of the 12 Fed districts on the panel.

Members of the panel this year, including Citigroup Inc. Chief Executive Officer Michael Corbat, KeyCorp chief executive Beth Mooney, Bank of America Corp. chief executive Brian T. Moynihan, reported “broad-based slowing” of growth in consumer, auto, credit card, commercial real estate and commercial and industrial lending after the election.

Commercial and industrial loan growth last exceeded 3 percent on a year-over-year basis in mid-March, and was rising almost 10 percent at the start of 2016.

“Ambiguity associated with tax and health care reform is clouding the outlook for business owners and curbing appetite for long-term investments,” minutes of the Sept. 8 meeting said. “Clarity on the above issues could help spur near-term loan demand.”

Like many economists, the bankers wrestled with the contradiction of still-strong indicators of optimism and mediocre business results.

“While credit creation has fallen short of post-election expectations, we see a roughly three-quarter lag between improving confidence and increasing credit creation,” the minutes said. “If history is a guide, the potential for further improvement in the economy, as indicated by strong survey results, will continue into 2018.”

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