It is true that the market for loans has improved significantly since the depths of the last recession. However, a recent report by the Federal Deposit Insurance Corporation (FDIC) shows that lending levels are still not close to their 2008 numbers.
In fact, total loan balances for all banks in the third quarter of this year were $154.2 billion less than they were five years ago. This drop occurred even though total bank assets have increased by almost $1.3 trillion, or 1.9 percent during that time period.
Larger banks saw the largest decrease in lending. The report found that banks with more than $1 billion in assets saw their loans shrink by $182.8 billion, or 0.4 percent. Meanwhile, smaller banks with fewer than $1 billion in assets saw an uptick in lending, which grew by $28.4 billion, or 0.7 percent.
While these numbers are nothing to be positive about, the report suggested that banks could face even more trouble down the road. Many have been purchasing long-term securities, which could expose the banks to higher costs when interest rates—currently at record lows—inevitably rise in the future.
"Banks that have experienced significant changes to their asset or funding mix during the past several years should also consider implementing risk mitigation strategies now to reduce IRR exposure," read the report. "Such strategies are easier and more cost-effective to implement before a substantial rate movement occurs."
Indeed, there are various ways that banks can go about managing their risks. One way is to adopt risk management software.