Don't expect banks to start deploying the cash they've received from the U.S. government anytime soon. That's the takeaway from an article this morning in the New York Times. In other words, if you're waiting for the banking system to step up its credit-card lending, for example, because of the new cash infusion, don't hold your breath.
From the Times story: Banks Are Likely to Hold Tight to Bailout Money
"But Treasury Secretary Henry M. Paulson Jr. is urging them to use their new capital soon. On Monday, Mr. Paulson unveiled plans to provide $125 billion to nine banks on terms that were more favorable than they would have received in the marketplace. The government, however, has offered no written requirements about how or when the banks must use the money."
And with no written requirements, that means banks can sit on the cash and do what they'd like. If you're a troubled bank, for example, you'll be reticent about redeploying that cash. You're more likely going to sit on it.
“It’s clear that the government would like us to use the capital,” Mr. Dimon said on a conference call with analysts on Wednesday. “If you are a bank that is filling a hole, you obviously can’t do that.”
And which bank couldn't claim that? I imagine every bank in this country is filling holes. No?
My guess is that the bailout money won't do a lot for lending. Instead, it will be used to shore up ailing balance sheets.