Lending Club Blog

Banks Still Not Lending to Sound Borrowers

This morning most news media outlets reported their reactions to remarks made earlier by Federal Reserve Chairman Ben Bernanke at a bankers conference in Chicago.  Although reporters do not seem to agree on what it all means, two clear statements about bank lending came out of it:

  1. Credit remains tight and banks are still not lending to sound borrowers.
  2. Bank lending continues to shrink despite massive government efforts.

Perhaps Bernanke does not know yet about Lending Club, but the exact opposite is happening here: first, Lending Club rates are designed to reward creditworthy borrowers with better rates on personal loans; and second, our volume continues to grow at a 5-10% rate every single month to date: in April alone, Lending Club issued more than $9.5 mm in loans.

Here is a round-up of media coverage of Bernanke’s remarks so you can make your own assessment:

Associated Press: “Banks should make loans to sound borrowers” by Jeannine Aversa
The Wall Street Journal: “Bernanke warns of small-bank risks” by Luca Di Leo
Market Watch: “Bernanke optimistic about bank lending outlook” by Greg Robb
The Economic Times: “US bank lending still shrinking: Bernanke
Reuters: “Bernanke sees more conservative securitization mkt” by Kristine Cooke
CNN Money: “Bernanke: Fed’s not waiting for Congress on reform” by Ben Rooney Bloomberg
BusinessWeek: “Bernanke sees ‘reasons for optimism’ on bank credit” by Scott Lanman and Vivien Lou Chen

What do you think it all means?  Leave us a comment below.

@RobGarciaSJ
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Thursday, May 6th, 2010 at 2:10 pm

Comments (9)

  1. I think the implications are clear, financial institutions are not
    sound yet. Housing bubble was large and it takes time to deflate.
    This means golden opportunity for alternative financial services,
    like you guys. Paying off credit card debt and social lending are
    ideas, that definitely should gain more attention.

    May 7th, 2010 at 12:50 pm

  2. Stan:

    This makes me so MAD, I think they need to audit the fed and start
    kicking these bankers butts!

    May 7th, 2010 at 3:23 pm

  3. Danielle:

    The Fed is working with other government regulators and investors
    to strengthen the infrastructure of key financial markets, he said.
    Among them are the market for securities repurchase agreements, or
    “repos,” and over-the-counter derivatives.

    May 8th, 2010 at 10:55 am

  4. Why would they lend? They got that money for pretty much nothing.
    Why take the risk if you get a profit for nothing.

    May 10th, 2010 at 4:51 pm

  5. thongsai:

    they are making money without lending risks.. so why change.

    May 11th, 2010 at 12:24 pm

  6. Tony:

    If a bank holds the public interest at heart, they should lend. How
    else can they survive without borrowers. Yes, they could keep
    getting money from bailouts, but their image will be ruined (as
    sachs is finding out) and new banks will emerge take their place.
    No one will trust the old banks. Without the public trust, they
    have no business calling themselves banks. This is why Lending
    Club, though not without risk, has a strong appeal to many levels
    of investors.

    May 12th, 2010 at 4:02 pm

  7. Well, here in Canada the government has pretty tightened mortgage
    rules (all borrowers must qualify for a five-year fixed-rate
    mortgage, even if they choose a variable mortgage with a lower rate
    or a shorter term), so we have experienced surge of buyers, but it
    will be increasingly difficult to borrow, especially for young
    people, no matter how willing our banks will be.

    May 17th, 2010 at 11:32 am

  8. In Canada, there is a large number of Canada Government Grants
    available for a multiple industries and types of businesses. In the
    US, I’m not sure.

    August 11th, 2010 at 7:50 am

  9. Jay Buckhanan:

    Outstanding observation! This is what we are all experiencing, but
    very few newspapers call it what it is.

    September 29th, 2010 at 4:43 pm

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