The California Bankers Association and Beacon Economics Release Second California Banking and Economic Update
Authors find lending is up for California-based banks, and an improvement in the state’s banking sector is well underway
SACRAMENTO, CA — The California Bankers Association (CBA), one of the largest state banking trade associations, and Beacon Economics have released the second California “Banking and Economic Update,” a report that examines important issues that currently affect California’s banking industry and overall economy. The report is authored by Chris Thornberg, Ph.D., founding partner, and Jordan Levine, economist and director of economic research, at Beacon Economics.
This report examines the state of California’s banking sector, including how California-based banks* expanded their lending throughout 2011, giving a boost to the state’s economic recovery. The report finds that loan volumes are up by more than 8 percent at banks based in California, since hitting bottom in 2010. This represents a much faster growth rate than the remainder of the U.S. where loan volumes hit bottom nearly a year later, in 2011, and have subsequently risen by less than 1 percent. And, while California-based banks do not represent the entire universe of lending in the state, the nation’s largest banks that maintain a significant presence in California+, have also increased lending alongside California-based banks, and at least a portion of that has accrued to California. Since hitting the bottom in the first quarter of 2011, these banks have increased total loans by almost 7 percent. Thus, not only are California based-banks lending more, but banks headquartered outside of the state have also boosted lending in recent quarters, with California among the many states benefitting from this increase in activity.
“California’s banking industry is, and will continue to be, a critical component of California’s economic recovery,” said Rodney Brown, president and CEO of the California Bankers Association. “The report findings underscore that fact, while demonstrating that California banks have provided a needed source of credit to the state’s businesses and residents during the past 15 months.”
The report also notes that the balance sheets of California-based banks have improved considerably since the depths of the Great Recession: return on assets has been positive and increasing, tier 1 capital-to-asset ratios have reached the 13 percent range and liquidity has improved. In fact, California’s commercial banks are better capitalized than during the height of the economic bubble.
The results of this study were discussed today in a teleconference call, delivered by the two authors from Beacon Economics. During the call, report author Jordan Levine noted that in examining bank lending data it is important to understand that the data is nuanced in terms of how it is reported, organized and presented. Headline numbers reported by the FDIC at the state level can be misleading and to get a more accurate read, deeper analysis is needed. For example, according to the data reported by the FDIC, the volume of loans at California’s commercial banks declined by more than 11 percent between the first quarter of 2009 and the second quarter of 2010. This is a much larger reduction in loans than was seen at all U.S. commercial banks, where loan volumes declined by 5.8 percent between the third quarter of 2008 and the first quarter of 2011.
However, what these statistics do not show is how much of the decline in lending in California was due to bank consolidation versus a genuine reduction in lending activity. Beacon Economics’ analysis of the FDIC’s call report database, which provides banking data down to the individual institution level, finds that the reduction in loan volumes across the state was almost entirely due to consolidation of troubled banks rather than a reduction of loan volumes by California’s remaining commercial banks. In other words, the decline in loan volumes in the state is a function of how banks report data rather than a lack of lending.
Finally, the report also offers the authors’ insights into the national and state economic landscape, including a specific look at California’s economic recovery, which is outpacing the national economic recovery.
* California-based banks include 240 of the state’s commercial banks headquartered in the state, including Wells Fargo.
+ Bank of America, JP Morgan Chase, U.S. Bank and Citigroup are headquartered outside of California.
Please contact Beth Mills to schedule a media interview with the study authors.
About the California Bankers Association (CBA)
Established 121 years ago, the California Bankers Association (CBA) is one of the largest state banking trade associations in the country. CBA leads the way in developing relevant educational and legislative solutions to some of California’s more pressing financial and banking issues, including financial empowerment, identity theft, financial privacy, and financial elder abuse. CBA’s membership includes nearly 200 of California’s commercial, industrial and community banks and savings associations. For more information, visit www.calbankers.com.
About Beacon Economics, LLC
Beacon Economics, LLC is an independent economic research and consulting firm with offices in Los Angeles and the San Francisco Bay Area. The firm delivers economic analysis and data sites that help their clients make informed, strategic decisions about investment, growth, revenue, policy, and other critical economic and financial issues. Their nationally recognized forecasters were among the first to predict the collapse of the housing market and foretell the onset and depth of the economic downturn that followed. Core areas of expertise include economic and revenue forecasting, market and industry analysis, economic impact studies, economic policy analysis, and international trade analysis.