Lending Metrics, Part III: Are Businesses Using Available Credit?

Loan demand, as we discussed in the last post, has declined dramatically at banks as the economy slipped into a recession. One concrete demonstration of this slowdown in demand is just how much people and businesses are actually using their outstanding lines of credit. The fact that banks have been reducing the maximum lines of credit to help manage risk exposure in a weak economy has sometimes been (mis)interpreted as an unwillingness on the part of banks to lend. Like the bank lending volume measure we discussed in the first post, such an interpretation misses the mark.

In fact, even with the cutbacks in lines of credit, there is $6 trillion in unused commitments made available by FDIC-insured banks. Moreover, the utilization rates have declined for business lending, reflecting the decreased demand. Credit card utilization rates have risen somewhat, but the rate remains low overall at 18.7 percent, and demonstrates that there is a considerable amount of credit available for card holders. Just as businesses are more cautious in taking on new debt, so are consumers, which is the major reason why revolving debt outstanding has declined consistently for the last 16 months.





Also see Lending Metrics, Part I: Are Banks Lending?
And Lending Metrics, Part II: Are Businesses Borrowing?