Of course, the statistics don’t say that. Statistics about lending volume always leave me wondering. It doesn’t do much good to know how much lending is taking place if we don’t have some understanding of the demand. In other words, it doesn’t matter so much how much a bank lends, it matters how much it lends in relation to demand.

Statisics for measure bank lending are readily available, but statistics gauging loan demand are scarce. You really need statistics on both lending and demand, however, before you can make any assessments about the effectiveness of banks in meeting credit needs. When lending decreases, it is easy to assume demand remains the same and that banks are not doing their job. But that is a huge assumption, one that is usually inaccurate.

I would like to see the economic experts develop some kind of a ratio that illustrates lending in relation to demand. If we knew banks were meeting 75 percent of the demand this quarter compared to 65 percent last quarter we would know something useful about bank lending trends. Knowing only that lending decreased by 2 percent tells us nothing. We need a new ratio to get an accurate picture of conditions and whether they are improving or deteriorating.

In the 14-state coverage area of NorthWestern Financial Review magazine, 556 of the 3,274 banks lost money in the second quarter, for 16.9 percent. That’s better than the national average of about 20 percent but it compares with 14.6 percent for Upper Midwest banks at the end of the first quarter. Conditions remain particularly difficult in Colorado and Michigan, where 24.4 percent and 29.1 percent of banks, respectively, lost money in the second quarter.

The strongest states in the region are Nebraska and North Dakota. Nebraska’s 364 banks recorded return on assets in the second quarter of 1.48 percent and return on equity of 14.87. North Dakota’s 124 banks recorded return on assets of 1.00 percent and return on equity of 10.37 percent. Statistics in both states were squewed by particularly strong performance among the largest banks. Statistics for banks in those states with fewer than $100 million in assets were more modest. In Nebraska, average ROA in the quarter among smaller banks was 0.83 percent and ROE was 7.03 percent. In North Dakota, it was 0.80 percent for ROA and 7.99 percent for ROE.

In most Upper Midwest states, however, smaller banks did better than larger banks. Minnesota banks, for example, had ROA of 0.40 percent and ROE of 3.92 percent, but banks with fewer than $100 million in assets had 0.55 percent ROA and 5.16 percent ROA. Iowa banks had ROA of 0.75 percent and ROE of 7.49 percent, but Iowa banks with fewer than $100 million in  assets had ROA of 1.05 percent and ROE of 9.08 percent.

The statistics in Wisconsin look particularly dismal, with aggregate net income through the first six months of the year at negative $111 million, but that is due to M&I Marshall & Ilsley Bank’s $237 million loss through the first half of the year. If you consider only the state’s banks with $100 million in assets or fewer, conditions look much better with average ROA at 0.64 percent and ROE at 5.38 percent.

This statement from ABA’s chief economist, Jim Chessen, provides a little more perspective:

Today’s report indicates that the banking industry continues to regain its strength, though the fragile economy still presents significant challenges.  Banks have increased their capital levels and set aside strong reserves to cover problem loans that typically result from high levels of unemployment and business failures.  Problem loans are down, allowing banks to put losses behind them and look for new lending opportunities as the economy improves.

The decrease in loans outstanding is not unexpected given the still weak economy and the regulatory uncertainty that has been hovering over the industry for nearly two years.  Decreased loan levels are in large part due to very low demand from businesses and consumers.  Businesses are still reluctant to take on new debt without having hard evidence that consumers are willing to buy their products.  The economic outlook is still cloudy, which makes a prudent approach to credit a necessity.

Banks added another $27 billion in equity capital in the second quarter and total industry capital is now just short of $1.5 trillion.  When added to the more than $250 billion in reserves banks have set aside to cover losses, this makes for a total buffer of roughly $1.75 trillion against losses.  In addition, the capital-to-assets ratio – a key measure of financial strength – continues to improve and is at the highest level in decades.  In fact, 95.6 percent of banks – holding over 98.8 percent of the industry’s assets – are classified as ‘well capitalized,’ which is the highest regulatory designation possible. 

The increase in the number of banks on the list of troubled institutions is not surprising given some parts of the country are still mired in the recession.  The banking industry is committed to maintaining the strength of the deposit insurance fund and all costs of the FDIC are borne by the industry, not taxpayers.  Each depositor is fully insured up to $250,000, and in the 75-year history of the FDIC no depositor has ever lost a penny of insured deposits.

Navigating the ups and downs of the economy is nothing new to banking.  The vast majority of banks have been in business for more than 50 years, and one of every three banks has served its local community for more than a century.  Through good times and bad, it is this philosophy of building long-term relationships with customers that has made banks successful.

Let’s be clear that this kind of information is already available. Many newspapers and other publications publish the compensation of big company leadership. And there are many services, including the U.S. Census Bureau, that publish mean income, by household and/or individual. Looking at the two sets of data, we all have a pretty good idea of what’s going on in this country. There already are a lot of people outraged by the disparity between top earners and staff.

The Dodd-Frank Act provision will surely exacerbate the outrage. If such disparity is a legitimate Congressional concern, I would be much more impressed by actual measures to address it than mere efforts to incite hostility over it.

There is a lot of anger in this country now over a lot of issues; I am not comforted by the idea of pouring gasoline on this fire at this time. Congress needs to focus on taking real action; it needs to do much more than simply whip up sentiment. But with our polarized Congress and political scene, this may be the best they can do.