Big Banks' Lending Drops Despite Bailout Cash

Banks say funds can't go straight to loans, and recession cuts down on would-be borrowers
By Matt Cantor,  Newser User
Posted Jan 26, 2009 10:23 AM CST
Bank of America received $45 billion in TARP loans, but the value of its outstanding loans declined by 1.2% from the third quarter to the fourth.   (AP Photo)
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(Newser) – Lending is down at some of the biggest beneficiaries of the $148 billion the Treasury hoped would get US banks lending again, the Wall Street Journal reports. Of 13 banks to receive major government backing, 10 saw a decline in their outstanding loan balances between the third and fourth quarters of 2008. Analysts fear the decline shows the government plan has “failed.”

“Basically we have dropped a huge amount of money and we have nothing to show for what we actually wanted to happen,” says a finance professor. But banks say they need time to channel money into healthy loans; meanwhile, demand for loans has dropped as consumers and businesses cut spending. Still, the Obama administration aims to give the bailout a retooling.