According to the most recent data released by the Federal Reserve, the banking sector in the U.S. is out of balance. For every $1 that banks hold in deposits from consumers and businesses, they try to lend out 95 cents. Right now, the industry is lending about 78 cents for every dollar in deposits. This is happening for several reasons. First, companies (and to a more limited extent consumers) are sitting on cash. Banks currently hold nearly $9.2 trillion in cash deposits. Secondly, the demand for loans from businesses and consumers has fallen. Businesses are still uncertain about the state of the economy and many consumers are more concerned about paying down debt rather than borrowing more. Bank lending standards are generally tighter, meaning that the people that actually want to borrow money probably don’t qualify. In total, banks have nearly $7.2 trillion in loans outstanding, this spread of $2 trillion between cash deposits and loans is ten times more than the spread in October 2008. With interest rates near zero already, there is little the Federal Reserve can do to stimulate borrowing and lending. It's up to businesses, consumers and banks to feel ready.
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