"Banks are still not lending. They're hoarding an awful lot of cash somewhere," says Doug Skinner, director of regulatory compliance for Automated Financial Systems Inc., Exton, which sells loan-tracking software to Citibank, Wells Fargo, Bank of America, and dozens of other big lenders.
AFS compiles a survey of loans and losses at its clients (whose results it does not break out by name) every quarter in partnership with the Philadelphia-based Risk Management Association, a bank lenders' group.
Things aren't looking better, but they are looking a little less bad, in the latest report, released last week. "We've seen defaults increasing for three years, 12 quarters in a row. Last quarter was the smallest increase we've seen in two years," Skinner told me. "It's still fragile. For a couple years the banks were reporting that things are bad and they're getting worse at a rapidly accelerating pace. This quarter, for the first time in awhile, we have some banks reporting, either that some things are getting better, or at least that it's getting stable."
They're starting to lose less; why aren't they lending more? "All our new-loan metrics are very weak," he said. Have their underwriting standards tightened? Absolutely. But everyone's saying 'Demand's not thier either.' Who knows how true it is?"
Tough times has been helpful for AFS's data-sales line, which collects price, spread, fee, capital utilization, and other basic financial trend information. "When defaults are low, it's a great partyand everyone is well; we had these low, flat lines, we couldn't get anyone interested in our data, it was so boring," Skinner told me. "What we needed for sales was a recession." As one lender told him, "We want to make sure we don't suck as much as anyone else."