Bank credit, the sum of loans and securities at commercial banks, is widely viewed as providing information about the current and future state of the economy. Analysts have been concerned about the behavior of bank credit during the nation's recovery from the 1990-91 recession. At first, analysts worried the recovery would be hampered because banks were making too few loans and purchasing too many securities. More recently, loan growth has picked up and securities growth has slowed, a development some analysts view as a sign the economy is growing too fast to keep inflationary pressures in check.> Bank credit growth may also shed light on the current and future state of the district economy. Trends in Tenth District bank credit may vary substantially, however, from trends in the nation as a whole. For example, district banks could be in better financial condition than banks nationwide, making district banks more willing to lend. Or district businesses and households could be more optimistic about future earnings, making them more willing to borrow.> Keeton describes the growth in bank credit in district states during the recovery and compares the district experience with that of the nation. He concludes that loan growth and securities growth followed the same pattern in the district as the nation, but that loan growth in the district was much stronger.
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Article provided by Federal Reserve Bank of Kansas City in its journal Economic Review.