NEW YORK -- For the first time in 27 years, banks have more government securities on their books than business loans.
Data released by the Federal Reserve Board show that commercial and industrial loans outstanding slipped to $598.5 billion at the end of June, while holdings of U.S. government securities climbed to $607.3 billion.
The two figures have been converging
for months, but their changing places provides dramatic evidence of how the recession and the aftermath of massive lending problems have changed the business of banking.
The Fed report, issued Friday, provides grist for critics who assert that banks are abdicating their role as intermediaries between savers and business borrowers.
By loading up on Treasury bills and the like, banks are helping the government finance the national deficit. But they are doing little to fuel the engines of economic growth, critics charge.
Fed Chairman Alan Greenspan told a congressional panel last week that bank lending efforts, particularly in New England, are "unacceptable."
Banks, clearly stung by the attacks on
their lending policies, cite weak credit demand, rather than a reluctance to lend, as the main cause for the steady decline in business loans.
Economists say it is hard to tell which is more to blame.
"Obviously, demand is weak, but I do think there has been a drastic tightening of lending standards," says Norman Robertson, chief economist at Mellon Bank in Pittsburgh. "There probably is a sizable number of small and medium-sized companies who might want to expand but are unable to because they can't get financing from the banks."
That, in turn, could be undermining employment, consumer confidence, personal income and spending, thus hindering an economic recovery, he says.