Why Banks Need You to Stay in Debt

It's an odd day when bankers go begging for assets.

But several deals in recent weeks highlight their conundrum: Booming deposit growth has outstripped loan demand, forcing bankers to scratch for assets that can help relieve some of the pressure from narrowing profit margins. Much as been said about the shrinking gap between short- and long-term interest rates--what the banks call "the yield curve"--and that is partly to blame for the struggle to squeeze profits from lending. Intense competition for corporate and industrial loan business is another problem as banks cut deals and lower underwriting standards to win loan assignments. "Big banks need asset generators, and corporate loans are just not profitable," says David Hendler, an analyst at CreditSights. "Consumer loans are needed."