Businesses often need money and one way they get it is through commercial loans from banks. We gauge this environment by graphing the total mass of loans banks have made to commercial entities. Of course, the fact that the current mass of loans is the highest it’s ever been is hardly surprising: The economy is growing and loan levels aren’t adjusted for inflation, so this measure is bound to keep increasing. For this reason, we’ll deflate this indicator with a proxy for the size of the economy: nominal GDP (i.e., not real GDP).
Now we have a better way to compare commercial lending conditions over time. Things are still looking rather good right now, but consider these two caveats: 1. Businesses have other ways to finance—say, through private loans or issuing bonds or stock in equity markets. These options may change over time, which probably explains why there was an upward trend in the early decades, when this sort of financing was building up. 2. This reported loan mass shows only the results of supply and demand, but not how difficult it is to get a loan (actual supply) or how much businesses want these loans (actual demand).
To evaluate loan supply conditions, the Federal Reserve conducts a survey of loan officers, asking them whether they tightened loans conditions and for whom. The graph below shows this, with higher values indicating tighter lending conditions. It’s very clear how recessions have led bank officers to be more careful with their lending. But right now, conditions seem to be pretty good.
How these graphs were created: Top graph: Search for “commercial loans.” Middle graph: First, use the top graph. Then go to the “Edit Graph” panel to add “GDP” to the first line, making sure to use the nominal measure. Then apply formula a/b. Bottom graph: Start afresh and search for “loan standards”; select the two series you want and click on “Add to Graph.”
Suggested by Christian Zimmermann.
Recent St. Louis Fed research
