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Banks Not Lending Is a Good Thing for CDs and Savings Accounts?

December 08, 2009

By Andrew Freiburghouse | Money Rates Columnist

Banks continue to be very stingy with loans. Small businesses are being particularly shut out of the credit markets, much to the dismay of the Obama Administration, which needs the unemployment rolls to slim.

However, there is another perspective to be viewed on this matter:

According to a provocative but sensible argument posted at Yahoo Finance, banks not lending is actually a good thing for conservative investors who hold money in CDs and savings accounts.

How can it be that banks not lending is a positive for CDs and savings accounts?

It can be simply because banks, by lending, are exposing themselves to losses...and it's unlikely that many banks would be able to sustain yet more losses. Meanwhile, it's likely that many new loans to uncertain borrowers (insert your favorite struggling small business here) would default.

More defaults would mean more trouble for banks, which would increase the risk profile of conservative investments such as CDs and savings accounts, especially at certain banks that are already struggling badly.

Yes, it is extremely difficult to see the problems with unemployment, small businesses going out of business on every corner, and borrowers with imperfect credit having a lot of difficulty qualifying for home loans.

There is an argument to be made, though, for leaving bad enough alone, rather than forcing banks to make yet more bad loans because of political considerations.

Your responses to ‘Banks Not Lending Is a Good Thing for CDs and Savings Accounts?’

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Bill M.

19 January 2010 at 9:16 am

Thanks for discuss this. Good post on your website. I was reading your message and I have bookmark your blog done.

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