Why Are Banks Not Making More Loans After Receiving The Bailout Money?

As you may know by now, unless you have been living under a rock, our banking system is in a shambles. More banks than we know are on the brink of disaster. So in order to help them out and boost their lending the government forwarded some of the money to these banks to get them back on track. The idea was to get banks lending again by providing them with the necessary funds. After receiving the funds the banks still are not lending. Why is this? What are they doing with money?

Some of the banks are receiving the money and spearheading if for other endeavors which are not being completely disclosed. A portion of the banks receiving the funds were interviewed and they refused to disclose what they used the money for or were going to use the money. According to the Washington Post other banks took the money and purchased other banks that were in financial trouble, which in essence used up the majority of the money to be used for lending. Another reason the banks are not lending is due to the fact that they are required to keep a certain amount of reserves on hand which are to be used to offset any losses they may incur for a period of time. Therefore if a bank was low on reserves they would have taken the money to replenish its reserves.

In order to lend money banks need to have deposits coming in on a regular basis and if there are no deposits they cannot lend money. This has been a primary source of lending in times past. Based on this information it looks like the government invested the bailout money in banks that really needed the money handle some lingering problems instead of with banks that were in the best position to start lending money. The question I have is didn’t everyone know this before they started tossing billions of dollars around?

It sounds like there is no accountability as far as the bailout money is concerned. There should have been strict guidelines in place regarding how that money should have been used. From what I am hearing the new administration will make sure that happens, in the future, before any more money is tossed around.

Most of the people are now relying more on loan agencies like Majestic Lake Financial Logo than banks because of the comprehensive loan programs that loan agencies provide to their clients. In addition, they also offer low interest rates.

Banks are continuing to tighten the standards for lending and what turns out to be ironic is that the banks that have received some type of bailout money are tightening their restrictions even more so than the banks that have not received the tax payer money. This is all baffling but hopefully we can get the banks to make a concerted effort to start lending so that they economy can start the long road back to recovery.

Max
Written by Max