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Federal Reserve Board Chairman Ben Bernanke told lawmakers that his concerns about financial stability risks from historically low interest rates have "increased a bit."
May 22 -
Margin compression once again overpowered loan growth in the first quarter, sapping banks traditional source of revenue.
May 15 -
More lenders are willing to make second-lien loans because of hot demand and greater yield, even as regulators warn against risks in the leveraged-lending market.
May 3
Lately, banks of all sizes have been pointing fingers at one another, claiming the other guy has been offering irrational prices and cutting corners to compete for business loans.
Its easy to see why the accusations are flying. Amid
Which banks in particular have been the most aggressive? Data on yields and growth for portfolios of commercial and industrial loans offers some perspective. (The following graphic shows trends for individual banks among a group with more than $50 billion of assets on two tabs. Interactive controls are described in the captions. Text continues below.)
Among a dozen publicly traded banks with more than $50 billion of assets, C&I yields fell particularly sharply at companies like SunTrust (STI) and PNC (PNC) between the first quarter of 2012 and the first quarter this year a contraction of 66 basis points to 4.2% at SunTrust and 48 basis points to 4.03% at PNC.
Over the same time, average C&I loans grew briskly at PNC by 20% to $83 billion but relatively slowly at SunTrust, by 9% (below the group median of 12%) to $54 billion.
In absolute terms, yields at SunTrust and PNC have held above the group median for the past few years.
There is no straight line between yields and growth and competitive stance, to be sure. What might appear to be aggressive pricing could instead reflect things like acquisitions which may involve the fusing of loan portfolios with different risk and yield profiles and accounting for impaired assets. Both those factors were at play at PNC, for instance, which completed its acquisition of RBC Bank in March last year. (RBC Bank had $2.5 billion of commercial and industrial loans as of yearend 2011, compared with the $14 billion growth in the average size of PNCs portfolio during the year through the first quarter of 2013.)
Besides, yields say nothing about the other half of the picture: whether banks are lending to borrowers with poorer credit quality, or cutting slack on other loan features, like maturities.
Echoing
Alarm has been triggered by a surge in activity and
The JPMorgan analysts reckoned yield-hungry banks could be retaining 10% to 40% of syndications they arrange on their balance sheets. Despite the bull market in the paper and hence narrowed spreads that sort of practice could buoy portfolio yields, since rates for higher credit-quality borrowing are lower.
C&I yields at Fifth Third and Regions have hewed closely to the group median over time; the contraction at each bank in the year through the first quarter was also close to the group median.
Broadly, the case for a bubble in bank lending to businesses is hazy.
Still, declarations that bankers are uncomfortable with the competitive environment are troubling, and the risks in the loans that are being written today may not become apparent for years.