Everyone knows that when banks tighten up on credit, they are bad because they are denying access to the American Dream. And when they loosen up credit, they are bad because they are leading the innocent down the primrose path to bankruptcy and foreclosure. It's the cross we must bear, I suppose.

"another nail in the coffin of consumers" - goodnight, is there some consititution right to a loan?

Hey Bugs, is that Mick Ronson (his guitar set to 'stun')?

From ABA newsbytes:

Fed Survey Finds Banks Still Tightening Lending Standards
The percentage of banks tightening lending standards during the past three months rose across the various loan categories, according to the Federal Reserve's July survey of senior loan officers released yesterday. About 75 percent of the 52 U.S. banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60 percent in the April survey.

Of the 32 banks that said they were still originating nontraditional home mortgages, about 85 percent said they had tightened their lending standards, up from 75 percent in the previous survey

OK? No one is denying that banking is not conservative. If they were not, why would they have underwriters?

Yes! I was hoping somebody would notice.

that's hilarious!

the banks can afford to lend cheaply and prolifically right now. they aren't. they learned some hard lessons (which is why i laughed at shemp) and they still aren't lending. i posted this as an economic issue, not a consumer rights issue, huge pale.

Don't forget, banking is all about managing risk. Based on the economy at the time, banks can afford more or less risk subject to oversight by the regulators and its stockholders through its board of directors. Remember that banks who do not accept enough risk are subject to regulatory oversight just as much as the bank who takes on too much risk.

man, i don't know how financial institutions and risk management can be used in the same sentiment after this bubble. now we should trust their over-conservatism? hardly. the contagion was in the economic forecasting and "underwriting" that went on. those have more than corrected but the industry still hasn't reflected the correction.

fwiw, i am not surprised. it was more of a jab at shifting orthodoxy of the confirmed conservative bankers. just the economic prowess and intuition that our economy needs.

you are being silly Ronny!!

there are many reasons for not lending right now, including capital allocation, risks, liquidity

you name it we have the issues!

my point huge pale is that your allocation and risk issues should be quite clear but, instead, you are being over-conservative and if you were doing more/new business, you wouldn't have the liquidity issues.

if i wanted the company line, i could read the website.

Don't forget inflation. Based on the published inflation figures, inflation is running at 5.5%. Deposit interest rates should be nearer to 6% than 2% annually. If you use inflation stats and calculations from the 1970s and early 80s, inflation is running nearer to 12%. Remember that when you get your 2-3% raise in February.

I'd hunker down and cut costs where you can - we're not out of the woods yet.

how does "not doing business" = "cutting costs"?

not doing business is not what is taking place. Placing tougher standards to do business is what is taking place, and as Pale pointed out, other considerations such as ALCO concerns and liquidity risk managment enter into the picture.

they are way past this. they needed to correct standards to where they should have been, not blow past it.

i already mentioned how alco and liquidity are involved so please address those points if you disagree with them.

Your response to Pale did not really address it.

With all of the defaulted loans, regulators may be requiring greater LLRs, and although it has been many years since I worked on these, I seem to remember that this comes out of earnings or capital (Sox in '07 or Pale could probably confirm or refute this).

If banks are increasing their LLR, then their bottom lines are hit, so they also likely have to increase the Tier 1 and/or Tier 2 Capital Reserves.

This is going to cause banks to be even more restrictive in lending standards so as not to increase the likelihood that they will have to write-off more bad debts.

i understand the leverage effects involved, my point is with turning away business that they should otherwise take. if the regulatory limits are what are over-conservative here, then those should be fixed.

the article seemed to suggest that this was on the institution side though.

While this is only one piece to banks' earnings and the ability to lend further, fromt he article David Wyss points this out:

David Wyss, chief economist for Standard & Poor's in New York, said the tighter lending standards reflect the huge loan losses that banks have already suffered. Those losses have depleted the capital they need as reserves against future losses and made it more difficult for the banks to sell their mortgages and other loans as asset-backed securities, a process that provides them with money to make new loans.

It seems to me that this is a temporary Catch-22 that the banks are in regardless of the sentiment that more loans are needed to generate longer-term income.

If they do not have the money to make the new loans as readily as they did in the past, then expect fewer and higher priced mortgages, which is what we are seeing.

it would seem like wyss stated 2 things: 1) llr and 2) general risk adversion. you highlighted the 2nd point which is talking about my point that there is excessive conservatism taking place.

I highlighted the point that they cannot package asset-backed securities for sale in the secondary market as a source of income to make new loans, because the assets used in the asset-backed security packages must be used to cover LLRs and risk-based capital cushions. It is not a choice the banks can make, because they have to keep LLRs and Capital Cushions up to snuff with regulatory requirements.

If capital gets too low, then the Regulators can hit them with a PCA, and to my memory, that in turn affects a sleu of other concerns for the bank.

amlf, the reason that they can't sell them and thus maintain assets for llr is because the buyers are scared based on recent history, ie, they are being over-conservative.

Ron's knowledge knows no bounds. Can anyone even complile the list of whom Ron is better than? Add bankers to it folks.

Of course, just a few months ago, Ron argued that bankers caused this by being too loose, now, they are being too tight.

I think we should all send our loan apps to Ron so he can show us exactly where that "just right" spot is.

For what its worth, my institution has closed more mortgages this year than last year, despite rising charge offs and provision costs. But Ron would say we are being too loose. Classic stuff ronno.

that is exactly right and is why i said "fwiw, i am not surprised. it was more of a jab at shifting orthodoxy of the confirmed conservative bankers. just the economic prowess and intuition that our economy needs."

and i would say that your bank and many others are probably doing just fine and are likely underpriced/potential targets much like dip's bank is. the state of the economy says that you are in the minority though.