Declining US commercial bank loans?

Sober Look highlights the sharply declining ratio of commercial bank loans and leases to bank deposits.

Ratio of commercial bank loans and leases to bank deposits

Its only when we examine the detail, however, that we note cash reserves have ballooned in the last 10 years. And most of those cash reserves are deposits at the Fed which now (post-GFC) earn interest. Adjust total deposits at commercial banks, for the excess reserves deposited back with the Fed, and the current ratio of 1:1 looks a lot healthier.

Ratio of commercial bank loans and leases to bank deposits Adjusted for Excess Reserves

As I pointed out in November, most new money created by the Fed QE program is being deposited straight back with the Fed as excess reserves. We need to adjust bank deposits for this effect to obtain a true reflection of bank lending activity.