Sometimes, the credit crunch is very hard to see in the data. Of course, it is there, but one needs to look very closely at the data to find it.
Take for example, the high street banks and their recent lending activity. Data for April shows a recovery, particularly compared to the autumn. So have the banks gained a degree of confidence and started to lend again?
It is hard to say. Around half of this new lending went to "other financial institutions."
Personally, I have never been sure what are these "other institutions." They occupy that grey area behind the normal banking system. They are non-deposit taking institutions and therefore subjected to less stringent regulation from the FSA. What is certain, however, is that these institutions have become an increasingly important mechanism to off-load risk from the mainstream banking sector.
Take this lending to other financial institutions away from the aggregate lending data, and things look very different. Lending actually falls dramatically, illustrating dramatically that banks are beginning to reduce their lending to other sectors of the economy.
We find a similar data conundrum when we look at real estate lending. On the face of it, lending activity is holding up rather well. However, most of this new lending activity is due to remortgaging rather than genuinely new lending activity.
Increasingly, the data points to two conclusions. First, the credit crunch is centred on the housing market, and lending to individuals. This is where the big risks are for banks. Second, banks are also engaged in some rather obscure lending activity that tends to obscure the full impact of the credit crunch.
(data source: British Bankers Association, which covers activity from the main high street banks)