We visited this issue of US banks hoarding cash and lots of it a few months back. At the time we were all still being blasted with the eco-friendly metaphor of green shoots and how credit appeared to be thawing — even their Crooner-in-Chief jumped in with his sightings of the fabled green shoots.

Well, folks, as we reluctantly have to admit at times, facts are truth, being quite different animals to political and predictable fiction.

When last we looked upon US credit markets, every mainstream-media talking head was putting their house on the below chart’s dip around January/February as representative of US banks pulling-up the shutters and inviting everyone back in again for a coffee and chat about how much they needed for their new loans. Alas, those role-playing talking heads got more than a little ahead of themselves as the current US banks reserve position clearly highlights below — perhaps those same talking heads should have asked the bankers what they were intending to do first.

Anyway the immediate US bank lending story from the chart is cold and simple — “come back tomorrow” — or — “don’t call us, we’ll call you”.

US banks are showing no other sign than a continued contraction in all forms of lending if you aren’t already a big and beautiful company, where the contraction is grinding economic growth slower and slower, while simultaneously helping to prevent any turnaround in rising unemployment for the foreseeable future.

Fact is, many small, medium and large US banks know there are plenty more residential and commercial mortgage defaults just around the corner leading well into 2011, plus massive property deflation revising down valuations across their books — and with still stacks of exotic and toxic securities on their books, those banks need to have plenty of dry powder to cover plenty of further losses down the line.

And to be sure, when the US chokes off credit at home, it also means our banks find it very hard to source participants for essential syndicated loans by which we finance most of our little adventures in capitalism down under. (Click here or on the image below to enlarge)

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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