Thursday, February 12, 2009

What Congress forgot to ask the bankers

Yesterday when the bankers were telling Congress how much they have been lending, I don't know of anyone who asked them how much of these loans in response to pre-existing lines of credit. One of the ways banks try to get fees is to collect interest on lines of credit -- money that they have not yet lent, but stand willing to lend in the future. Banks are contractually obligated to fulfill these loans.

With credit tightening, many borrowers have taken advantage of these lines of credit. Doing so, they give the impression that banks are increasing their loans, but the arrangements for these loans, in effect, may have been made quite some time ago.


Ken Houghton said...

"Banks are contractually obligated to fulfill these loans."

Tell that to JPMChase, which has been arbitrarily cutting off HELOC holders without warning.

And they're supposed to be the =solvent= ones.

Michael Perelman said...

I guess "rich" means never having to say you are sorry.