Given that credit markets are on high alert, and that banks report very tight credit conditions, it is remarkable that credit card lending continues to rise. But this is only part of the story - in fact, it is one-third of the story. Here is what the broader Federal Reserve's G19 report says about total consumer credit outstanding in December (which is lagged, and only reported on a monthly basis):
Consumer credit decreased at an annual rate of 3 percent in the fourth quarter. Revolving credit decreased at an annual rate of 5-1/2 percent, and nonrevolving credit decreased at an annual rate of 1-3/4 percent. In December, consumer credit decreased at an annual rate of 3 percent.
On the whole, revolving credit dropped two consecutive months (November and December).
The chart illustrates the change in total consumer credit, revolving and non-revolving. This includes everything - car loans, student loans, and accumulated credit card debt (revolving). Consumers are paying down debt, either by force or by choice. But December's decline in revolving credit, -$6.3 billion, is the largest decline on record since 1968 (the first data point for revolving credit).
Total consumer lending by type of institution tells a slightly different story from the H.8 statemnt of credit extended by banking institutions.
This chart illustrates the annual growth in consumer credit outstanding by type of institution: commercial banks (the H.8 statement) plus credit unions plus saving institutions, securitized pools, finance companies, federal government and sallie mae, and nonfinancial businesses.
All government regulated lending - commercial banks (around 5.1%) and federal government and sallie mae (12%) - is growing at a decent annual growth pace. While nonregulated lending at financial companies (+0.4%), securitized pools (-4%), and nonfinancial businesses (+0.4%) is barely zero, or falling over the year.
One report (H.8) shows that consumer credit is still growing at a healthy rate, while another report (G19) shows that revolving credit has decreased for two consecutive months. The G19 better describes consumer lending conditions in a quickly contracting economy.
There are some targeted measures, like the Term Asset Backed Securities Loan Facility (TALF) that will help to improve the overall balance sheet of all financial institutions; but the bulk of the lending facilities are targeted at the commercial bank system's aggregate balance sheet, as listed in the H.8 release. However, the stock of consumer credit outstanding, $2.6 trillion, is three times the size of the consumer credit extended by the commercial banking system, $0.872 trillion.The chart illustrates the share of total outstanding consumer credit by type of institution. The share of extended credit by the commercial banking system has fallen from 47% of total lending in 1989 to 33.6% in December 2008. On the other hand, the share of lending flowing through the securitized industry has increased from just 4% in 1989 to 25.3% in December 2008. So there you have it: it is the market that has fallen flat - the securitized asset market - that is dragging down consumer lending; and not the commercial banking system, which has been propped up by policy.
This analysis reveals the importance of the securitized industry in credit markets that matter for consumers. The Fed's liquidity measures can only do so much; they can pump up reserves in the commercial banking system to keep lending positive. But it is the securitized industry that has fallen down, and dragging with it, lending rates, which is why policy must target this market specifically.