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Better times ahead? US banks prepare for a loan boom

22nd April 2021 Print

The pandemic has played a toll on us all – that goes without saying. In addition to the difficulties faced by families, children and adults across every state in America, businesses and the wider economy have struggled to endure a sudden downturn in income and an uptake in sheer uncertainty over the future.

Fortunately, with recent announcements of full vaccine availability, better times appear on the horizon. We now can reasonably hope for an America in 2021 that is in full recovery from one of the most singular periods in history, with companies pinning their goals on ending the year in a better place than when they started it.

Stimulating the economy

A vital element of this plan for recovery is the manner in which banks will act towards their clients in the months before us. With key players such as JP Morgan and Goldman Sachs disclosing their first-quarter figures just recently, it now seems likely that there will be a significant increase in lending.

With so many businesses utterly starved for capital and funding to manage furlough and general expenses, the degree to which America’s economy is hoped to recover will largely depend on the extent to which banks will provide loans to their clients – and how stringent their requirements will be. 

Inflow and outflow

From the bank’s perspective, they are in a unique and delicate situation as providers of that lending stimulation to the wider economy of the USA. Over the course of the last year, they have experienced a spike in deposits due to the inclination among clients to save during such an uncertain period. This has been further defined by a general reluctance and difficulty in subsequently using that influx of money, leaving banks with an opportunity to utilise their capital but a severe limitation in terms of how to do so. 

A key hinge here is the way in which the major corporations across the country plan to act in the remaining months of 2021. The extent to which the largest players will borrow from the banking sector is going to play a singular and decisive role in determining the recovery and stimulation of the USA’s struggling economy, leaving the banking sector firmly in the hot seat in how it responds to loan demand.

Tax changes

One major factor in the extent to which large corporations across America are expected to act in the second quarter is exactly how the government is expected to adjust corporation tax. As is common and normal in the recovery phase of an economic recession such as this, the US government holds the keys to potential recovery through how it adjusts corporation tax to incentivize corporations and businesses to borrow money. 

In this way, SMEs and larger operations both are keeping a keen eye on changes and are preparing to take a business line of credit if it suits them to do so. 

The path ahead

Generally speaking, optimism is high. Analysts have widely praised the recovery of the US banking sector, recognising that it has emerged from the worst period of the pandemic in a far better state than many believed would be the case. Despite so many companies and corporations falling under due to such disruption to their cash flow and operations, those who have endured stand ready and waiting at the starting line, waiting with tension and a keen eye on government adjustments and the willingness of banks to provide loans to stimulate the economy.

While the picture is by no means perfect, there is real expectation and hope for 2021’s second quarter to hail in an America fully engaged in recovery and a return to some semblance of normalcy.