More and more stories are appearing that exhibit the reasons why the commercial banks below the behemoth size are not seeing their lending growing. And, the evidence appears to be that the slowdown in lending is being affected by the demand for loans from businesses and households as well as by the supply of loans coming from the banking sector.

Yesterday, I touched on the aggregate balance sheet figures published by the Federal Reserve. One can interpret the most current data as showing that the financial difficulties that larger commercial banks have been facing are migrating to the smaller banks and this is affecting bank lending activity.

This morning there were two articles in the New York Times on the front page of the business section that provide additional antidotes and analysis on what the "less-than-huge" commercial banks are facing. The first looks at the situation that some borrowers are facing in attempting to obtain loans from banks. This article, by Peter Goodman, "Clamps on Credit Tighten", http://www.nytimes.com/2009/10/13/business/smallbusiness/13lending.html?_r=1&ref=business, emphasizes the difficulties small companies are having because they cannot obtain funds from the banking system at this time.

It becomes apparent within the article, however, that the shortfall of lending is not solely coming from the supply side. Raymond Davis, the chief executive of Umpqua Bank, in Portland, Oregon is quoted as saying, "Banks want to lend money. The problem is the effect that the recession is having on us. Some of these businesses are still trying to come out of it. For them to go to a bank, if they are showing weak performance, it is harder to borrow." The Umpqua Bank is a regional lender.

In other words, businesses know that the banks have tightened their requirements when it comes to lending and they know that their balance sheets and income statements are not up to these new bank standards. Consequently, they are postponing even going to the bank until such time as they are in a position to get a favorable response on a loan application.

These business, of course, are ones that are not in such dire straits that they are desperate for funds and are trying to find any source they can for obtaining the funds that they need. Fortunately for them they can wait out the current state of affairs, at least for the near term. However, this delay means that people don't get hired and inventories are not purchased and so economic recovery is pushed off longer into the future.

Also, these companies are restructuring in an effort to get their balance sheets in order: "Among small privately held companies, the amount of debt they carry as a portion of their equity has slipped by about 5 percent since 2007" the article reports.