Banks' corporate lending as a share of GDP has stagnated even as America Inc has indulged in a borrowing boom
the first modern bankers realised that they could get away with keeping only some of the gold that was deposited with them on hand, and lending out the rest. In most countries banks have dominated lending to households and firms ever since. America has long been different, though.
Banks’ stagnation and their risk aversion has had consequences for how central banks respond to crises. In 2007-09 the Federal Reserve had to intervene in capital markets, but went to much greater lengths to prop up commercial and investment banks. Earlier this year, however, banks went relatively unscathed as capital markets seized up. Rather than acting as a lender of last resort to banks, the Fed became marketmaker of last resort, intervening in credit markets with a total size of about $23.
Regulation has blunted banks’ competitive advantage. The fact that they were vertically integrated—they tended to issue loans, monitor and collect those loans, and hold the associated risk on their balance-sheets—once gave them an edge over investors and funds seeking to profit from just one slice of a transaction. It made up for the fact that they were slow to embrace technology. But bankers now talk of their balance-sheets as a “scarce” resource.
Separating the activities of the “real” banks from shadow firms is harder. Some non-banks, such as private-credit lending arms, make loans just as banks do. And just as they did before the financial crisis, banks issue shadow instruments that are allocated in capital markets, such as mortgage-backed securities or bundled corporate loans. Banks also lend to shadow banks. This has been one area where bank lending has grown relative toUntangling these complex interlinkages is tricky.
The firm is one of the largest equity traders in America. Jane Street Capital, another non-bank trading firm, has also found success intermediating equity markets.
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