Foreign-Related Financial Institutions Continue to “Suck Up” U. S. Excess Reserves

For your information, 0.4 percent of the banks in the United States, the largest 25 commercial banks, control 56 percent of the banking assets in the country.

The smallest banks, banks less than $100 million in total assets, which make up 35 percent of the banks in the country, control 1.0 percent of the banking assets in the country.

The next size category, commercial banks with more than $100 million in assets but less than $1.0 billion in assets, make up 57 percent of the number of banks in the country. These banks control another 9.0 percent of the banking assets in the country.

Consolidating these last two categories we find that 92 percent of the commercial banks in the country control only 10 percent of the banking assets of the country.

Just thought you might want to know these facts.

Over the past year, the total assets in the banking system in the United States grew by a little more than $630 billion.

Over the past year, the cash assets in the banking system in the United States grew by a little more than $650 billion!

Thank you, quantitative easing!

Of the $650 billion increase in cash assets, over 75 percent of the increase went into the cash assets of foreign-related banking institutions in the United States. And, over 85 percent of this increase went into the amount of liabilities due to the foreign offices of these foreign related banking institutions.

Three cheers for the “call” trade!

And, what about stimulating loan demand in the United States to get the economy going? The loans and leases at all commercial banks dropped by about $75 billion over the past year.

Business loans (commercial and industrial loans or C&I loans) did rise by a little more than $55 billion during this time period but the increase largely took place at the largest 25 banks; business loans at the remaining 6,400 banks in the country stayed relatively flat.

Over the latest 13-weeks business loans fell fairly dramatically at the smaller banks as the amount of assets in the smaller banks has actually declined.

But, it is still the real estate area that continues to suffer. Real estate loans on the books of commercial banks fell by about $175 billion over the past 12-month period. Dollar-wise, the drop was roughly the same between the largest 25 banks and the rest of the banking system.

The major part of the decline, however, came in the commercial real estate area, which declined by about $125 billion, again, with the largest banks and the smaller banks declining by about equal dollar amounts.

Over the last 13-week period, the decline in commercial real estate loans seemed to accelerate in the smaller banks relative to the larger banks. This points to the fundamental problem the smaller banks are having with their lending in the commercial real estate area. This in not supposed to get better in the near term.

The conclusions I draw from these data are: first, that the quantitative easing (QE2) of the Federal Reserve primarily went “off shore” and to this day remains “off shore.”

Second, many of the smaller commercial banks in this country are in very serious financial condition and many of the problems are located in the commercial real estate area. But, it seems as if there may be growing trouble located in their basic business loan portfolios.

Third, fundamental business lending seems to be picking up somewhat, but primarily at the largest 25 commercial banks in the country. Commercial real estate lending at these banks, however, has not picked up and is unlikely to do so in the near future.

These statistics do not point to a banking system that is ready to underwrite a strong economic expansion.

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About John Mason 79 Articles

Professional history: Banking--President and CEO of two publically traded financial institutions; Executive Vice President and CFO of another. Academic--Professor at Penn State University and at the Finance Department, Wharton School, University of Pennsylvania. Government--Special Assistant to Secretary George Romney at Department of Housing and Urban Development; Senior Economist in Federal Reserve System. Entrepreneurial--work in venture capital and other private equity; work with young entrepreneurs in urban environment.

Visit: Mase: Economics and Finance

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