Treasury says loans held by the largest banks getting bailout support decline again in July

Treasury lending report sees another decline

WASHINGTON — Lending by the largest banks that received government bailout support declined for the sixth consecutive month in July, the government said Tuesday.

The Treasury Department said in its monthly report that average loan balances at the top 22 recipients of government bailout support dropped by 1 percent in July. The average loan balances had also fallen by 1 percent in June.

The survey monitors the impact the bailout program is having toward boosting lending to consumers and businesses.

Critics have charged that the bailout program has failed at its major goal. The Obama administration argues that lending would have dropped off even further during the recession if it had not been for the government’s rescue efforts.

In dollar terms, the average loan balance at the top 22 banks that received support from the government’s $700 billion financial rescue program declined by $53.9 billion in July after dropping by $45.7 billion in June.

The report said that the origination of new loans fell by 10 percent in July compared to June. It attributed the drop in average loan balances to decreased demand from borrowers, although banks have also been tightening up on their lending standards to reduce levels of bad loans on their books.

The Treasury report found that only three of the institutions had increases in loan originations. Hartford Financial Services Group Inc. posted the biggest percentage gain, a jump of 50 percent, but the total new loan originations were just $3 million.

The other two institutions with gains in loan originations were American Express Co., where new loan originations rose by 17 percent, to $1.62 billion, and BB&T Corp., up 4 percent to $7.8 billion in total new loan originations in July. Comerica Inc. showed a flat reading in July, compared to June, with total originations basically unchanged at $4.2 billion.

The other institutions posted declines in loan originations were led by Bank of New York Mellon Corp., where loan originations fell by 62 percent to $221 million. Loan originations were down 51 percent at Goldman Sachs Group Inc. to $1.2 billion, and dropped by 34 percent at both Citigroup, where originations totaled $15.8 billion, and Morgan Stanley, where originations totaled $3.1 billion.

Many of the large banks that got bailout money have paid the government back in an effort to escape the additional scrutiny that participation in the program had triggered, including government restrictions on bonuses paid to top executives.

Critics of the financial rescue effort have argued that the government has not done enough to ensure that the money banks received was being used to boost loan activity.

The new report was released one day after President Barack Obama, in a speech in New York City on the one-year anniversary of the failure of investment bank Lehman Brothers, said that while the economy and the financial system are stabilizing, banks should not return to the risky practices that triggered last year’s crisis.