Big banks fire up lending

ROAD TO RESCUE

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• Banker: "TARP helped avert a global calamity"

The nation's 21 biggest lenders reported a double-digit increase in new loan originations in March.

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NEW YORK (CNNMoney.com) -- Lending at the nation's top banks perked up in March, according to a government report issued Friday, even as the U.S. economy continued to be mired in a painful recession.

The total number of new loans at the 21 biggest recipients of taxpayer funds under the government's Troubled Assets Relief Program, (TARP) grew 27% in March from the previous month. On a median basis, that number reached 13%, according to a Treasury Department report.

Regulators reported a robust increase in lending activity across a wide variety of loans including those for new credit cards and home equity lines.

At the same time, total outstanding loan balances contracted in March, falling 0.9% to $4.38 trillion, the government said.

Loosening credit? Banks' willingness to lend money has become a focal point in the ongoing crisis.

Regulators contend that the situation would have been much more dire had they not moved swiftly late last year to inject capital into banks of all sizes.

Consumers and businesses continue to argue that credit remains tough to come by. But banks maintain that they are lending even as the appetite for new loans has dropped off.

Demand for commercial real estate and business loans dwindled during the month as many companies pared back expansion plans -- a trend that banks predict will continue.

Some experts, however, have charged that the monthly reading by Treasury is hardly an accurate representation of banks' lending activity. Critics point out that the report tracks month-to-month changes, rather than the more telling change in lending activity from a year ago.

The Treasury Department did acknowledge that the uptick in lending activity in the latest survey could have been impacted by seasonal factors as well as the three additional business days during the month of March when compared with February.

TARP spending. So far, Treasury has invested roughly $200 billion in more than 579 financial institutions across the country as part of its capital purchase program.

Still, most banks have not entirely worked their way through the TARP funds they've received.

Earlier this week, Citigroup (C, Fortune 500) said that it made $8.2 billion in loans backed by TARP during the first quarter, bringing its total funding commitments to $44.75 billion.

That amount however, does not necessarily suggest that nearly all of the taxpayer aid has been spent. Experts have indicated that capital injected into banks tends to have a multiplier effect. So for every dollar of government capital, banks are able to make $10 in loans.

Citi has been one of the biggest recipients of government aid, taking in $45 billion in taxpayer funds. As a result of the government's "stress-test" program, Citi was among the 10 banks found to be facing a capital shortfall.