Over the course of the recession, growth in bank lending leapfrogged, and then sank below, growth in overall lending to nonfinancial sectors, excluding the government.

Given the spectacular meltdown in securitization, and the relative stability of commercial banking amid the colossal failures across the "shadow" system, the greater volatility could seem unexpected. But mortgage bonds packaged by Wall Street were supplanted by those with federal support, and the government housing rescue averted a blackout in home lending, the nation's largest category of debt.

Meanwhile, the horse race between bank and other types of lending repeated a pattern that has generally prevailed for decades: swings in the growth rate of the former have frequently been sharper (see chart).

Spikes in the early stages of a downturn or just before one sets in are largely attributable to borrowers, particularly corporations, turning to lines of credit when capital markets tighten or malfunction, according to William Longbrake, an executive in residence at the University of Maryland and a former vice chairman of Washington Mutual Inc. Swoons in bank lending quickly follow as credit demand sinks and corporations build up cash.

Also, as leveraged providers of credit, banks' willingness to lend pivots over vulnerable or impaired capital, in what BB&T Corp. CEO Kelly King described in a presentation this month as "dramatic tightening and jerking" that takes hold across much of the industry.

During expansions, the trajectory of bank lending can be subject to contradictory forces, Longbrake said. Demand for credit is generally strong, but credit spreads tend to narrow as the cycle matures, reducing the attractiveness of lending.

For now, bank lending as a percentage of nonfinancial debt is at a longtime nadir after the recent pullback, hitting 29.5% in the fourth quarter. (Overall, the figure has oscillated within a narrow, 4-percentage-point range for most of the decade, following a long period of rapid disintermediation.)

But with securitization far from healed, Longbrake expects banks to regain some share in the next few years. "The only real source to pick up that slack are the banks," he said.


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