If you haven’t noticed banks are REALLY pushing for your deposits more than they have in the past few years and getting tighter with their lending.  An obvious reason banks are turning down loans is because of higher default rates with people with sufficient credit scores.

Another reason banks are not lending so easily is because of cash flow reasons.  Believe it or not some banks are actually wanting you to pay the loan you have with them off to assist in cash flow problems. The diagram below shows how this works.

Banks have loans that are in their pipeline and they are working on closing. They need money to fund those loans so they need to either 1) raise deposits or 2) have some loans paid off to free up cash to fund the loans in the pipeline. If you look in the diagram you see a “clog” and the money cant flow as fast to fund future loans in the pipeline. That clog is from loans in the portfolio not making payments. Loans that are not being paid are Non-Performing Assets (NPA). A good number of problems are coming form aquistion and development loans that are starting to default. With home sales slumping developers are falling behind on payments and defaulting.

Now you know why banks are so desperate for your deposits and are tighter when giving a loan to you and ok with you paying off your loan early. They need money to fund future loans that are meeting their strict criteria.