Bank of America (NYSE:BAC), Citibank (NYSE:C), Wells Fargo (NYSE:WFC) Continue to Hold Back on Lending

One wise way to see how the state of things really are in almost any area of life is to not only listen to what is being said, but look what is being done. In the case of lending by big banks like Bank of America (NYSE:BAC), Citibank (NYSE:C) and Wells Fargo (NYSE:WFC), their actions definitely speak louder than words, as the giant banks continue to hold back on lending money.

Added together, according to a Bloomberg News report, the major banks in the U.S. are sitting on over $1 trillion in cash.

Why is this the case?

First of all it’s the interest rates. The banks can loan the money from the Federal Reserve for almost nothing, then they can turn around and keep the money there while making a nice profit. There is essentially no risk during a time when almost any type of loan is a risk. They can make money by doing nothing, so why take a major risk in economic times like these?

There are mixed signals from banks as well, mostly I think from government influence, which doesn’t want the public to know how bad things continue to be.

For example, if there is money to be made in loans, there seems to be no doubt the banks would be making the loans. The other side of it is the demand side. Businesses would be pushing for these loans if they saw significant change in the market and a green light to expand their operations and marketing. That obviously isn’t happening or the loans would be offered by the banks in a major way.

While it seems to be true things are getting a little better, or better said: a little less bad, there is only a slowdown in losses, not a reversal of losses where growth is now happening.

You can’t just take the loan standards being tightened as the sole reason for this either, as Obama has even pushed for banks to go over their rejection of business loans to find if there was any way they could lend the money. Not much has happened in that regard, confirming the economy is still extremely fragile and risky to lend in.

The other problem is on the governmental side, which seems to not know what to do as new regulation strategies are thrown around all the time, with nothing seeming to stick at this time. All the banks could take certain steps and find themselves in hot water or working against themselves if certain potential regulations are made into law. That leaves the banks in a defensive mode which they aren’t going to leave until that part of business is settled, and they can make decisions based upon that.

Finally, you have the inflation threat as a major part of the picture. It’s almost sure that once this money is lent out into the economy, inflation will surge to some significant level. No one can be sure how much, but there is a pent up and growing demand which when released will push the prices of goods and services up; especially the price of raw materials used to produce the goods.

The bottom line seems to be that we’re not going to see the banks doing any type of significant lending except in the case of major deals where the safety factor and potential rewards are close to being a sure success.