The decline in lending has ended and banks are consistently adding an average of $15 billion a month
to their commercial and industrial loan portfolios.

The volume of commercial and industrial loans at all commercial banks dropped rapidly as the result of the Great Recession. In October 2008, the total of commercial and industrial loans was $1,608 billion. By October 2010, this number had dropped to $1,204 billion. More than a quarter of these loans were wiped off the asset side of bank ledgers. While only some of the decline was due to the default, all of the income generated form those loans was lost.

Starting in November 2010, the volume of commercial loans started to climb, although still 8% below their previous year. The trend reversal has been continuos since then and by March 2012, the level of commercial and industrial loans has increased to $1,394 billion, 13% above March 2011’s level and only 13% below its all time high in October 2010.

This is a major recovery, however, it should be noted that even at this rate, it will take until April 2013 for the total of commercial and industrial loans to reach their 2010 high.

While the economy is recovering, the rate of recovery is nothing like what we have been used to over the last half a century. The Great Recession was deeper and more devastating than anticipated. Most forecasts, underestimated the rate of decline and projected much faster recovery. The Great Recession, was more than a recession, that’s why all the estimates based on previous recessions forecast faster and stronger recovery. If we change our calculus to compare this with a depression, then our forecasts will be much closer to the reality.

The recovery will continue and the economy and even the housing market will get back to normal. It is, however, important to recognize that this will be a new normal and it will take some time to get there.