Here in the States 47% of banks report a tightening of lending standards for individuals and business. Many more have probably tightened, but not reported it, for example by requiring SBA guarantees for all new business lending.

It’s also fairly clear from flow of funds reporting that most of the top-25 banks in the US are indeed sitting on the moneys recently injected by the federal government and the Federal Reserve. They are indeed not lending it out, but are (instead) building their reserves.

My opinion as a business owner is: this is a good thing, not a bad one.

Banks are protecting their existing book. By strengthening their reserves (rather than writing new loans) they are greatly diminishing the likelihood of having to ‘call’ existing loans to maintain reserve requirements. Having my commercial mortgage called—and nearly all mortgages allow banks to do that on no more than 90 days’ notice—would destroy my otherwise sound and profitable business. Not good for the bank. Not good for the economy. And decidedly not good for me.

If the banks believe 20-year businesses like ours are of greater value than a proposed new tofu-only restaurant, that’s a good thing.

Furthermore, here in the States the banking problems (and best solutions) are going to be somewhat different than in the UK. The banking systems in the two countries are profoundly different: in the UK it broadly resembles a hybrid of Canada’s chartered banks and much of what you’d see in continental Europe. Here in the States our banking system still greatly reflects Jefferson’s absolute distrust of banks and bankers.

As a result, we have large numbers of small banks in which the CEO is also a major owner. He has his nuts in the vise, if you will. Guess what? These banks never made all those goofball loans. They never believed that buying someone else’s toxic waste was a good idea. They have continued taking deposits and lending against those deposits. They don’t have to de-leverage a thing.

Unfortunately, in many markets small banks are in direct competition with very large banks—Bank of America and its subsidiaries are now sitting on 53% of all US banking business—who currently receive hundreds of billions of taxpayer dollars to subsidise and paper over their greed- and stupidity-induced mistakes.

I hereby offer the “Hall Principle” of banking: if a bank is ‘too big to fail,’ it’s too big, period, and should be broken up.

Bart, I like that.

Bart, Excellent analysis. I agree