What credit crisis?

For the last few months we have all been inundated with news stories telling us that the interbank lending market has dried up, along with bank lending in general and that commercial paper markets have virtually ground to a halt.

But there are some dissenting voices emerging from the wilderness to tell us that all is not as it seems; that the figures don't support the US Federal Reserve's and Treasury Secretary's assertions about the dire state of bank lending.

Yesterday, Octavio Marenzi with analyst firm Celent, released a report aptly titled: Flawed Assumptions About the Credit Crisis, which makes no bones about the fact that Ben Bernanke, Federal Reserve chairman and Hank Paulson's comments about the so-called credit crisis are incorrect as they are not backed up by publicly available data, including stats provided by the Federal Reserve Bank itself.

Marenzi does not discount the fact that we are in a deep financial crisis with banks failing and countries teetering close to collapse. However, he says US lending markets are in "good health" and lending by US commercial banks increased 15% during the credit crisis. In fact it says an all-time record high in US commercial bank credit (more than $7.2 trillion) was reached in October 2008.

Marenzi contends that:

• Interbank lending reached its highest level ever in September 2008, and since the beginning of the credit crisis, it has increased approximately 22%. The cost of interbank lending also remains at low levels, he says.

• Contrary to the assertion that commercial paper markets had stopped functioning or become prohibitively expensive, Celent says outstanding volumes in the commercial paper market for non-financials are higher now than at any point since early 2004 and that the cost of borrowing in that market has dropped to at least 10-year lows for non-financials.

• Bank real estate lending also reached a record high in October 2008 and has grown consistently during and before the crisis

Marenzi proffers two possible explanations for the huge discrepancies between what Federal Reserve and government figures are saying and publicly available data. Perhaps Mr Paulson and Bernanke have additional data available to them that supports their assertion that credit markets are in trouble, although Celent is sceptical that such data is available.

The only other explanation, says Marenzi, is "that policymakers are reacting to the situation of a particular set of businesses and financial institutions, and are incorrectly generalising this to
the market as a whole. If this is the case, the policy tools being employed may well be the wrong ones."

Celent was inspired to publish its report following publication of a paper in October 2008, Facts and Myths about the Credit Crisis, which was written by three researchers at the Federal Reserve Bank of Minneapolis. According to Marenzi, the paper claimed that there appeared to
be an abundance of credit flowing in the US market and that the researchers were critical of US policymakers' lack of serious analysis and of "substituting hard data with their own speculation."

Marenzi also looked at commercial lending in Europe and said the data shows no evidence of a credit crisis with consumer lending in France and Italy continuing on the same trajectory since the beginning of 2003, while in Germany, consumer lending has been flat for some years. Commercial lending to non-financials in the three major eurozone economies was also at its highest ever levels at the end of October 2008, having shown steady growth since late 2005.

Based on Bank of England data and its own analysis, Celent also says that lending by UK banks is at its highest levels ever, growing at a rate of 12% annually since 1994. So it appears that the financial crisis has not translated into a general credit crisis, although we are being told differently.

UK Prime Minister Gordon Brown who accidentally remarked that he had saved the world by pumping billions into the UK economy to get credit flowing again, may be eating humble pie alongside various other political leaders.