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U.S. Bank Balance Sheets Swell with Commercial Loans and Fed Liquidity

April 01, 2020, 09:26 AM
Filed Under: Banking News
Related: S&P

A corporate scramble for cash and massive injections of liquidity by the Federal Reserve are reverberating across the balance sheets of U.S. commercial banks, with commercial and industrial loans registering the biggest week-over-week increase in more than 45 years, write S&P analysts Harry Terris and Zain Tariq.

C&I loans jumped 7.4%, or $176.17 billion, during the week ended March 18, according to seasonally adjusted data in the Fed's latest H.8 report on bank assets and liabilities. The data covers a week during which the crisis caused by the new coronavirus pandemic escalated rapidly. The Trump administration declared a national emergency March 13, and states placed increasing restrictions on public gatherings and business activity aimed at slowing the spread of the virus.

Corporations have drawn down more than $150 billion across more than 200 credit facilities since March 5 to stockpile cash and brace for disruptions in revenues, according to data from LCD News. That compares with the more than $2 trillion in unused C&I credit commitments banks had outstanding at the end of 2019, according to data from S&P Global Market Intelligence.

Banks also had about $400 billion in unused commercial real estate lines at the end of 2019. CRE loans were up 0.5%, or $11.11 billion, during the week ended March 18, according to the Fed data.

Heavy use of credit lines has raised concerns that bank capital cushions will become strained as balance sheets grow and borrowers hit by the pandemic expose lenders to credit risk. Banks do have the ability to cancel some commitments and invoke contractual protections against lending to distressed borrowers, however.

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