Although Cash Deposits Hit Record, in banks are at an all-time high, finance expert Mike Periu explains why lending remains flat.
According to the most recent data released by the Federal Reserve, the banking sector in the U.S. is out of balance. For every $1 that banks hold in deposits from consumers and businesses, they try to lend out 95 cents. Right now, the industry is lending about 78 cents for every dollar in deposits. This is happening for several reasons. First, companies (and to a more limited extent consumers) are sitting on cash. Banks currently hold nearly $9.2 trillion in cash deposits. Secondly, the demand for loans from businesses and consumers has fallen. Businesses are still uncertain about the state of the economy and many consumers are more concerned about paying down debt rather than borrowing more. Bank lending standards are generally tighter, meaning that the people that actually want to borrow money probably don’t qualify. In total, banks have nearly $7.2 trillion in loans outstanding, this spread of $2 trillion between cash deposits and loans is ten times more than the spread in October 2008. With interest rates near zero already, there is little the Federal Reserve can do to stimulate borrowing and lending. It’s up to businesses, consumers and banks to feel ready.
About small business finance expert Mike Periu
Mike Periu has experience in small business finance. He founded Proximo, LLC a company that offers consumer and small business training services focused on technology and money.
Mike Periu teaches individual empowerment through entrepreneurship and financial literacy. He has appeared 500+ times on television and radio. Visit the Reach and Media pages of his website to learn more about where he has appeared.
You can read more of Mike’s articles on his blog or at American Express OpenForum, Yahoo! Finanzas and the Huffington Post.
Mike has a degree in International Business and Finance which he received at Georgetown University in Washington, DC. He received a Fellowship from the Kauffman Foundation for the Labs for Enterprise Creation program in Kansas City.
