FDIC’s Hoenig: Bank Lending Weak Because of Payouts (99% Net Income Distribution)

Thomas Hoenig, the former KC Fed Chairman and current vice chairman of the Federal Deposit Insurance Corporation (FDIC) stated recently that banks are choosing to distribute their earnings to investors rather than lend.

WASHINGTON (Reuters) – Big banks say tight U.S. financial regulation forces them to sit on capital and not put money to work by making loans, but in truth they choose to distribute all of their earnings to investors instead of lending them, a long-time regulator said in a letter to two powerful senators released on Wednesday.

Using public data to analyze the 10 largest bank holding companies, Hoenig found they will distribute more than 100 percent of the current year’s earnings to investors, which could have supported to $537 billion in new loans.

On an annualized basis they will distribute 99 percent of net income, he added.

He added that if banks kept their share buybacks, totaling $83 billion, then under current capital rules they could boost commercial and consumer loans by $741.5 billion.

Here is a table from Hoenig’s letter to Senators Mike Crapo and Sherrod Brown. hoenigletter07-31-2017


Of course, deposit rates at banks are near zero giving them almost zero cost source of funding. And bank lending (especially Commercial and Industrial loans) are slowing appreciably.

And then we have 1-4 unit mortgage debt outstanding which has a YoY growth rate of 2.7%, the lowest in history before 2008.

That would help to explain the lack of US inflation (money trapped in the Federal Reserve System) and the pitiful velocity of money (the lowest in modern history).

So, The Fed’s zero-interest rate policies have not benefitted borrowers, but benefitted owners of bank stocks. And helped create massive asset bubbles (which Greenspan denies for stocks, but admits for bonds).