financial crisis

Big banks lend to corporations over consumers

April 18, 2014: 5:00 AM ET

Lending was up in the first quarter, but that jump has hidden the fact that individuals are still having a tough time getting loans.

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FORTUNE -- Consumers are still getting crunched.

In the past week, the nation's biggest banks reported their results for the first three months of the year. Earnings were disappointing. But the numbers also showed a significant increase in lending, which many economists said was a welcome sign for the economy.

The problem: Every additional dollar, and then some, that the nation's biggest banks have lent out in the past year has gone to corporations. So, while corporate lending was up by 7%, or $101 billion, from a year ago, that masked the fact that consumer lending at the nation's five biggest lenders has continued to drop, by $12 billion in the past year alone.

MORE: The problems with debt-hungry banks

Economists have been waiting for an increase in lending after the credit crunch that, in part, brought on the recession. And the fact that companies are borrowing more could signal that they have become more confident in the economy and are looking to raise dollars so they can do more hiring or somehow expand their business.

But others worry about how lopsided the volume of new loans has become. The lack of an increase in consumer credit could be a hangover from the financial crisis, which was mostly caused by an avalanche of consumer loan defaults, mostly from not being able or willing to pay their home loans. Corporate lending did not suffer the same losses.

This may have led banks to conclude that lending to corporations is not nearly as risky as lending to individuals. Jamie Dimon, CEO of JPMorgan Chase (JPM), told analysts during a recent conference call that individuals who either have good credit or are buying a very expensive house are able to get mortgage loans. But, he said, his bank and others are still reluctant to make any home loan with "any hair on it."

MORE: Time for bank investors to stress out

Corporate lending may not be as risk-free as banks seem to think. Recently, regulators have expressed concerns that as banks rush to lend to corporations, they may become overly lax, like they were in the run-up to the housing bubble. What's more, it's not clear that corporations are using the money they are borrowing to expand.

Some companies may simply be locking in low rates and putting the money in the bank. Corporations have also been buying back massive amounts of their own stock, a lot of it with borrowed funds.

Consumers almost always use the money they borrow, with credit cards and when they take out a new mortgage, for an immediate purchase.

The economy has become more uneven in general since the financial crisis. Corporate profits have reached record highs as a percentage of GDP, even as the economy in general still seems far from recovery. The stock market has made back all it lost in the recession and then some. Yet millions of more people are out of work today compared to before the financial crisis. The lopsided lending market is just one more sign of our stilted economy.

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