Large Bank Credit Provision During the Pandemic: Fact vs. Fiction

12 Feb 2021
Read Time 6 mins


A recent news story cited a statistic that “loans” at the top 25 largest banks had declined as a share of total assets to conclude that large banks are not supporting businesses and households. This narrative is incorrect and portrays a fundamental misunderstanding of how large banks provide credit in the modern economy and support the financial system to the benefit of households and businesses. In this post we review the facts on total credit provision by the eight Financial Services Forum members and document how these banks have supported the financial markets that have been so critical to the economy during this pandemic. We show that FSF members have increased a broad measure of credit provision – total credit – by $435 billion and have also increased assets devoted to financial intermediation to support liquid and well-functioning financial markets by nearly $250 billion. All told, FSF members are actively supporting the economy through a number of important channels that serve businesses and households in the modern economy. 

Large Bank Balance Sheets: Then vs. Now

Below we use bank holding company regulatory data for the eight Financial Services Forum members to present their aggregate balance sheet between the fourth quarter of 2019 and the third quarter of 2020, the period of most recent regulatory data. (While fourth quarter data are available through bank earnings releases, the specifics of what each bank reports varies, making consistent data aggregation impossible.)

As Table 1 makes clear in the final row, total assets among FSF members have grown by an unprecedented $1.4 trillion. As we discussed previously, the tremendous asset growth has been driven by a massive increase in deposits during the pandemic as well as significant increases in bank capital. Since all bank liabilities and equity fund some asset, all of this increase is reflected in the various asset categories contained in Table 1. We now discuss the most salient asset categories in Table 1 and describe how these assets provide credit to the economy and support well-functioning financial markets.   

Total Credit Provision

Total credit provision by FSF members to the economy increased by $435 billion from the fourth quarter of 2019 to the third quarter of 2020, showing a clear increase in credit support to households and businesses. 

While loans and bank lending are an important part of credit provision, they are not the only important source. In order to sensibly talk about total credit provided to the economy, it is necessary to consider all forms of credit provision. As shown in Table 1, banks provide credit to the economy in three ways – making direct loans, such as business and consumer loans; purchasing securities, such as corporate bonds and U.S. Treasuries that support borrowing by the government and corporations through public markets; and through repurchase agreements, or “repo,” which amounts to lending that is backed or “collateralized” by securities. All three components of credit provision are important components of total credit provision to the economy and focusing on one source to the exclusion of all others is both a mistake and misleading.

Importantly, FSF holdings of securities increased by over $390 billion. These securities holdings are largely U.S. Treasury and corporate debt securities. Purchases of corporate debt securities fund business borrowing in exactly the same way as a bank loan, though it is done through a financial security rather than a bank loan. Purchases of U.S. Treasury securities fund the operations of the U.S. government. During the pandemic, public borrowing has increased significantly to fund the pandemic response – notably the CARES Act. Figure 1 shows FSF member holdings of U.S. Treasury securities over the two time periods considered in Table 1.

As can be seen in Figure 1, FSF holdings of U.S. Treasuries have increased by nearly $300 billion, which has gone a long way toward funding enhanced unemployment benefits, emergency lending programs, and various other aspects of the government’s pandemic response.

At the same time, we should recognize that loans – consumer loans and business loans – have declined somewhat over this time period. Why has that occurred?  In the case of businesses, business lending exploded in the early days of the pandemic. For FSF members, business lending increased by $272 billion in Q1 of 2020.

Shortly thereafter, financial conditions became significantly more accommodative as the Federal Reserve launched various efforts to stabilize financial markets. As a result, many businesses replaced bank lending with corporate debt issuance. Moreover, this shift was directly supported by large banks as they actively underwrote securities and helped maintain liquid financial markets (more on this to follow). 

In the case of consumer lending, the U.S. economy has seen an unprecedented increase in the personal saving rate from roughly 7 percent pre-pandemic to nearly 13 percent today. At its peak in April 2020, personal savings exceeded 33 percent! Many households have increased their personal savings and have significantly reduced their demand for credit. As shown in Table 2 below, a survey by the Federal Reserve Bank of New York shows that the most common use of CARES Act stimulus payments was to increase savings or pay down debt. Increasing bank lending to households in this environment is simply unrealistic and akin to “pushing on a string.”

Financial Intermediation

Another key asset category that has increased over the course of the pandemic has been the amount of bank assets devoted to financial intermediation. These “trading assets” are financial instruments such as equities, bonds, and derivatives that are held in inventory for the purpose of helping companies and governments raise funding in the capital markets while also helping investors to trade financial instruments and hedge risk. During the pandemic, assets devoted to financial intermediation have increased by $245 billion as U.S. corporations have exhibited record increases in money borrowed from the public through securities markets. And large banks are instrumental in supporting these companies by bringing their securities to market through the underwriting process. Furthermore, the total amount of securities underwritten by FSF members increased from $2.25 trillion in the fourth quarter of 2019 to $3.16 trillion in the third quarter of 2020, a significant increase as shown in Figure 3.

More broadly, the large increase in trading assets has funded large bank market-making activities that support liquid capital markets so investors can trade and hedge risks at reasonable cost. Indeed, trading volumes have risen markedly in financial markets during the pandemic to support investor demands to hedge and control risks. And FSF members have been actively using their asset base to support these markets that directly support households and businesses across the country. It is hard to emphasize this point enough. The well-developed and liquid capital markets in the U.S. are envied across the world as they efficiently channel funds from savers to borrowers. The role played by large U.S. banks in maintaining robust capital markets, especially during this pandemic, underscores their importance in providing credit to the economy. 


Finally, it is important to recognize that the amount of cash held by large banks has increased too. The significant increase in cash holdings of FSF members reported in Table 1 can be traced to two factors. First, the Federal Reserve has engaged in a massive increase in the size of its balance sheet as depicted in Figure 4.    

As can be seen in the figure, the Federal Reserve has increased its balance sheet from roughly $4.5 trillion to over $7 trillion – an unprecedented increase. The main way that the Federal Reserve has increased its balance sheet is by purchasing U.S. Treasury bonds and injecting cash, or “reserves,” into the financial system. Only banks can hold reserves. As a result, as the Federal Reserve increases its balance sheet, the amount of cash reserves held by banks must increase. Given the size of the increase in the Federal Reserve’s balance sheet, the increase in bank cash holdings is not surprising.

Over time, banks can use reserves to make loans and purchase securities, but banks cannot do this overnight. Banks must engage in prudent risk management and consider the best way to deploy cash resources into the economy. Banks that simply “throw money” at loans and other investments without being prudent will only increase risks to the U.S. economy. Accordingly, so long as the Federal Reserve continues to inject large amounts of cash into the economy, large banks will likely hold elevated amount of cash.


The modern banking system deploys credit into the economy through multiple channels, not just through direct consumer and business lending. A narrow focus on loans is anachronistic and misleading. When viewed holistically, it is clear that large banks have deployed a significant amount of credit into the U.S. economy. In less than a year, FSF members increased total credit to the economy by $435 billion while increasing assets devoted to financial intermediation by nearly $250 billion. Moreover, FSF members have deployed additional assets to support the function of our capital markets, which have played a leading role in supporting businesses and households during this pandemic.   

Forum Updates