Bank Loans Down by $587 Billion in '09

The reality of the recession and shrinking money supply got another hard, cold fact check Tuesday with word that bank lending was down by $587 billion last year, a 7.5 percent drop, marking the deepest annual decline since the 1940s.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corp., which reported the numbers, attributed the biggest chunk of the decline to lending cutbacks by the largest banks as they tightened loan requirements and put aside larger reserves, according to The Washington Post.

There was also some encouraging news. Commercial banks and savings institutions showed an aggregate profit of $914 million in the fourth quarter of 2009, a significant gain over the same period in 2008, but well below historical norms, the FDIC said.

"Consistent with a recovering economy, we saw signs of improvement in industry performance," Bair said in a statement. "But as we have said before, recovery in the banking industry tends to lag behind the economy, as the industry works through its problem assets."