The president hectors bankers to lend. The Treasury secretary complains banks are hoarding cash. The Federal Reserve chairman sounds alarms...

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MINNEAPOLIS — The president hectors bankers to lend. The Treasury secretary complains banks are hoarding cash. The Federal Reserve chairman sounds alarms about reanimating banks in gridlock.

The nation indeed may be facing a financial crisis, with large institutions failing under multibillion debts, but most bank-lending to business customers actually has been on the rise.

“The story goes that they (banks) are holding on to the money or putting it into Treasury bills,” said Lawrence Christiano, a Northwestern University economist and consultant to the Federal Reserve Bank of Minneapolis. “That seems to fly directly into the face of the evidence that’s out there.”

The latest government numbers, through mid-October, show bank commercial and industrial loans up, bank commercial real-estate loans rising and interbank loans climbing.

Indeed, from September 2007 to mid-October of this year, the numbers in all three categories have climbed consistently.

It’s a puzzle that’s getting little attention, even as hundreds of billions of taxpayer dollars are devoted to fixing a problem that seems belied by government figures.

Data dispute claims

“Their own data seems to contradict their position,” said V.V. Chari. “It would be valuable for them to explain what they’re talking about.”

The $700 billion taxpayer bailout of large players in the financial system reminds Chari of the buildup to the Iraq war.

“The analogies with the war in Iraq are more than disturbing,” Chari said. “We’re again hearing things like: ‘We know things you don’t know. Trust us.’ “

Federal Reserve Board and Treasury representatives declined to comment on the discrepancies between the rising lending reflected by statistics and statements about the fragility of the banking sector made by Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

“Paulson said the funds stopped flowing,” Christiano said. “Nobody has explained how the money system has frozen when the data says it has not.”

To be sure, Federal Reserve Board figures could mask a slowdown in lending, to some degree. Major firms such as General Motors, the Tribune Co., Gannett and others have tapped huge lines of credit to ensure they will have enough cash in tough times.

But Chari, Christiano and University of Minnesota economist Patrick Kehoe, in a working paper published in October, note that bank deposits actually have climbed even as commercial-paper borrowing fell precipitously in recent weeks.

“One possibility is that banks are reducing their borrowings from the commercial-paper market and substituting deposits for these borrowings,” the authors wrote. “If so, it’s difficult to see why this substitution should create major problems for either the financial sector or the rest of the economy.”

Four myths

Four claims about the nature of the financial crisis appear to be myths, they concluded.

Their findings:

• Bank lending to corporate America and individuals has not declined.

• Lending between banks has not dried up.

• Commercial paper (short-term borrowing by nonfinancial companies) has fallen but not seized up as a source of commercial lending. (Indeed, commercial-paper levels last week started to head back up for the first time since the failure of Lehman Brothers, in mid-September.)

• Banks do not, as popularly believed, play a large role in channeling money from savers to borrowers.

Oscar Carlson, chief executive of Minneapolis-based American Spirit Graphics, recently borrowed $2.75 million to pay for new presses for his printing business. Getting the money was no problem, he said.

“Sure, we’re afraid of it,” Carlson said of the prospect of an economic downturn. “But it’s also a good time to expand,” he said. “In many cases, you can get better prices on the equipment and on the loans, because demand for both seems to be down.”

Rip Riordan, president of Ambassador Communications, bought his direct-mail advertising company recently with the help of a bank loan of more than $1 million.

“Friends all thought that wasn’t possible, based on how they were looking at trends,” he said. “It wasn’t based on any facts. It was based on assumptions.”

Brad Bakken, president of Citizens Independent Bank, said credit demand continues unabated.

“The financial markets are where the problems are,” Bakken said. “They’re primarily in the subprime market, where most of our banks did not participate.”