WASHINGTON -- Bankers say they are loading up on government securities more because of slack loan demand than capital pressures, according to a Federal Reserve survey.
Of 40 senior lending officers responding to a question about the recent rise in securities holdings, 88% said weak loan demand was a contributing factor, and 33% cited an uncertain economic outlook.
A Political Reaction
Only 23% included capital rules among the inducements to hold government securities. No capital has to be set aside for Treasuries under the risk-adjusted capital requirements.
The shift in bank-asset portfolios - in June, government securities surpassed commercial and industrial loans - has become a political hot button.
Many Washington lawmakers have cited the numbers as evidence that banks are unwilling to extend credit, and this is seen as hampering the economic recovery.
Of 59 lenders responding, 41, or 69%, said they built their securities holdings during the past two-and-a-half years. Eighteen, or 31%, reported sharp increases.
Overall, the survey indicated little change in demand for business loans since May.
Demand for mortgages, home-equity lines of credit, and other consumer loans increased, however.
The latest survey of senior lenders included a series of questions on capital ratios to gauge if the risk-based standards were causing banks to make fewer loans.
That charge has been made by Senate Banking Committee Chairman Donald W. Riegle, D-Mich.
Most Say Capital Is Strong
Few banks attribute any weakness in lending to capital shortages. Indeed, 87% of the bankers described their capital ratios -- either risk-adjusted or Tier 1 leverage -- as "fairly comfortable" or "very comfortable."
Only 5% deemed their risk-weighted capital tight, and 3.4% said the same about Tier 1 leverage.
In contrast to the zero risk-weighted capital requirement on guaranteed government securities, banks have to hold 7.2% against the full face value of commercial and consumer loans, rising to 8% next January.
About one-tenth of the bankers who reported "comfortable" capital levels said they were adopting a more aggressive lending stance as a result.
The small number that reported tight capital ratios said they were likely to increase loan sales, reduce dividends, or issue stock.
In a separate survey of 18 foreign banks with offices in the United States, the Fed found that capital constraints were a serious problem for Japanese banks.
None of them reported "very comfortable" capital positions at their parent companies. And four Japanese banks reported their capital was "fairly tight." Three of the four indicated that they were limiting lending in response.