Smaller Corporate Borrowing Is Good For Economy

Recently in a Wall Street Journal article by Dan Fitzpatrick and Shayndi Raice, the topic of smaller corporate borrowing was covered. The article has a negative tone towards the results of such activity for banks and the economy as a whole. But a couple of critical points are missing from the article.

The article stated that one of the reasons corporations are not borrowing is because of the fact that they have massive amounts of cash on their balance sheets. It is almost inconceivable that corporations would not borrow at these rates. It could mean that corporations feel that the growth from using their own cash will serve investors better than going into debt to do the same thing.

When was the last time banks were passed over to do their job? The government has almost literally handed them cash to lend. Even though standards have been raised, there were enough corporations and individuals that enjoyed the qualification and received extremely low rates when they borrowed.

This is all good news. For one, the fact that corporations are hemoraging cash on their balance sheets will get investors hungry for more growth and higher yields on their ownership. It has to get out somehow. The banks now will be forced to loosen the purse strings a little bit on new corporations and individuals that might not have the greatest credit. It's about time.

Another revenue gimmick for Banking Industry

In another move to take away money from business and consumers, the banking industry is about to put on a fee for simply using a debit card. The story is from AP via Yahoo!.

This is just another example of how banks are more in business for themselves than in it to grow business. Ridiculous!!!!!

Great article on Jamie Dimon

The New York Times has published an article (below) on Jaime Dimon that is worth reading

Jamie Dimon Article

Enjoy!

Amazing article on bank failures

Hey

Daniel Gross has written an exceptional article analyzing bank failures in the last few years.

Enjoy!

Banks will be lending soon

It looks like the retail banks will begin lending more in the near future. There are a few reasons for this idea. The banks' last quarter's earnings showed a lessening of loan losses. The banks' trading gains have also come back to earth now, eliminating that outlier. Companies also will be looking to expand their business as their balance sheets are cleaned up and their efficiencies are almost at an all time high.

The banks loan loss totals are getting smaller. This is obviously a positive for the banks in a couple of ways. Primarily, the banks can lessen the amount of money they hold back in order to cover loan losses. Last quarter, the banks used this money to pad earnings. But this is a bad long term strategy and can not be used for very long. The banks also have to replenish the amount of actual loans that were dramatically lessened in the last three to four years to their balance sheet. Consumer credit is increasing, allowing banks to feel more comfortable lending. Businesses have straightened out there balance sheets and set up their businesses to grow.

The ridiculous trading profits that were provided by the government funding through TARP is basically over. The market will not increase 50% like it did in the last two years. This will force the banks to find other forms of revenue in order to keep their shareholders happy. Lending is something that the banks are rumored to do from time to time.

Companies will have to expand their business in order to grow their profits. The ability to cut more is almost over. Production is quite high right now. Their balance sheets are set up to handle loans. They will be looking to the banks in order to provide loans to expand their business.

Local Banks

Recently, I went to the neighborhood local bank and started a savings account. I did this after researching what the effects of such a move would make on myself, the community, and the bank. I have come to the realization that there is a very important place in the banking industry for local banks. This action is not simply a direct move away from the mega bank. Mega banks also provide a service to the consumer that local banks cannot such as multiple branches and ATM's. It is simply an action taken to provide business to local bankers who keep their plan simple and their mission clear to the community. I encourage everyone to at the very least take a look at your local bank to open up an account.

The savings account was opened for a few reasons. The realization that I will actually see my money at work in the community is exciting to me. Also, local banks make the most of their revenue from banking and stay away from making their profits from other sources like trading. This creates an absolute focus on the business of banking which the megas don't have anymore. The opportunity for future business with the local bank will be made a little easier as their decision makers are in the building.

The idea that my money will be at work providing loans to local businesses is a good feeling. That is the essence of the local bank that the megas cannot match. Since they have a large stake in the community, they will be right there to help when needed. For instance, there is a local bakery right near me that received financing from the local bank. You can bet that I will be frequenting that bakery regularly knowing that people in the neighborhood have put in almost all the equity into the business.

The local banks are focused on banking. The megas have shown a lack of focus on banking and more of a focus on trading. This is clearly evident in their use of TARP funding. It was used for trading profits while lending did not get even the slightest bump. Local banks provide that focus on banking because that is their main source of revenue.

The third reason why I opened the account is that I will actually get to know the bank at a very close level. The decision makers for the bank are either in the same building or at the very least same neighborhood as the tellers and the rest of the bank. That provides an opportunity to create a lasting relationship with individuals of a local bank that I would not have access to at the megas.

So remember to check out your local banks. They provide a laser focus on banking, look to be the principle lender in the community because they are part of the community, and show a level of access that the megas cannot provide.

Bank of America does well

Hey

For all my bashing of Bank of America, I do have to finally give them credit.

Yesterday they imposed a rule not allowing debit card purchases if the customer does not have the funds to cover the transaction. This is a bold move that could win back my business. It shows that they are willing to sacrifice short term profits by decreasing revenue from overdraft fees in order to run the business of banking correctly.

Thank you Bank of America.