USA Today points out that TARP Banks cut lending more dramatically than banks that did not take TARP. For clarity, it is important that it be noted that a very large number of banks took TARP. The nine largest banks took TARP on day one, whether they wanted to or not (potential revisionism here on the part of some). At one point the NYT listed these banks as TARP banks. However, the largest banks do represent the lion’s share of deposits among TARP banks. Therefore, they cannot claim to not be the reason for this difference in lending, unless they claim they don’t make many loans at all, which I don’t think they will say.
This is consistent with my comments to the Huffington Post in which I said that while loan demand was down, lending was down disproportionately more.
It is also consistent with my call to break up the largest banks as a service to our economy. It is really very simple. As long as the largest banks can take deposits and allocate those to the highest profit opportunity they can find, in many cases deposits taken from one geographic or demographic community or class will fund investments elsewhere. If the opportunity does not exist to pull those deposits and invest them elsewhere, the bank will invest in primary markets to the maximum extent permitted by safety and soundness concerns.
The second major point of the story is that pay at these banks rose disproportionately. Again, this reflects paying bankers to gather deposits instead of make loans as well as the skewing of averages by big payouts for those at the top.
Comments from other bankers?