Although the subprime mortgage crisis started in mid-2007, real estate, commercial and individual lending continued to expand until the third quarter of 2008, albeit at a slower rate, wrote economists Silvio Contessi of the St Louis Fed and Johanna Francis of New York's Fordham University – reports from US commercial banks "do not show clear signs of distress in the commercial and industrial loan segment of the banking industry, at least through the end of September 2008". Meanwhile, falling mortgage rates through most of 2008 meant real estate lending continued to grow as borrowers refinanced existing mortgages.
The picture only changed in the fourth quarter of last year, when net credit contracted sharply – largely the result of lower lending at the country's largest banks, either because of tighter credit standards or lower demand. "The relatively smaller banks show little impact from the recession that began in 2007. Their credit growth was positive and comparable to, if not larger than, previous years," the study commented.
The study also found increasing use of previously arranged credit lines, suggesting 2008 saw a drop in new loans arranged that was masked by the tapping of credit facilities arranged before the start of the crisis. Credit was also becoming more difficult to obtain from other sources such as syndicated loans and commercial paper issuance, prompting commercial borrowers to rely more on banks. In the fourth quarter, credit contracted at a rate last seen in the 1990-91 recession, Contessi and Francis wrote.
This does not bode well for the recovery of the financial markets, they add, drawing on a comparison between the current recession and five recent recessions. The early stages of this recession looked similar to the 1980 and 1981-2 recessions in the US, implying a rapid recovery in credit, but "in the 1991 recession, however, the decline in credit expansion and the increase in contraction were persistent, lasting for two years into the recovery". The authors added: "It is possible further quarterly data will reveal a creditless recovery", in which credit remains difficult to obtain even after the economy starts to grow again.