that said, the category of “ other loans and leases " fell by more than enough to offset those increases. total loans held on the balance sheets of banks in this group decreased by about $ 9 billion over the fourth quarter. the right panel of figure 11 presents the increases in loans held by banking organizations not included in the largest 25. these organizations ended the quarter with $ 3. 3 trillion of balance sheet assets. these entities increased their holdings of commercial and industrial loans ( by $ 4 billion ), real estate loans ( by $ 17 billion ), and consumer loans ( by $ 9 billion ). on net, bank holding companies and banks in this size class increased their lending by about $ 27 billion – far less than the reductions in lending at banks in the larger - size groups. within real estate loans, residential mortgage holdings by banking organizations declined sharply over the second half of 2008. in part, this decline reflected a slower pace of originations owing to tighter lending standards and weaker demand. but this decline also reflected the fact that banks continued to originate and sell mortgages to the gses as this securitization mechanism has continued to function. in contrast, home equity loan growth has recently been brisk as borrowers tapped their existing lines of credit. unlike mortgage loans, home equity loans tended to remain on bank balance sheets. abstracting from a couple of bank subsidiaries were rolled up to the bank holding company level. the category labeled " other loans " in figure 11 includes loans to finance agricultural production, loans to foreign governments and official institutions, interbank loans, obligations of states and political subdivisions, as well as lease financing receivables. the most important of these subcategories varies across banks of different sizes. for example, over the last five years, the largest category of other loans was interbank loans for the 5 largest banks, lease financing receivables for the 6 to 25 largest banks, and loans to finance agricultural production for the remaining banks. bank restructuring events, growth in consumer loans – the other category of household lending – was weak in the fourth quarter, in line with lackluster retail sales and declines in consumer confidence. originations may pick up as the talf gains traction and abs can be issued that are collateralized with such loans. 14 turning to business lending, commercial and industrial lending, which, as previously discussed, had surged during the period of particularly acute financial stress in september and october, was very weak during the fourth quarter, and commercial mortgage

the current state of the banking industry. as you know, banks play a special role in just about every economy in the world, and the united states is no exception. banks'liabilities are generally more liquid than their assets. they are also the main repositories of deposits, which provide immediately available liquidity to households and businesses and are used to undertake transactions for goods and services. in addition, banks provide intermediation between borrowers and savers. indeed, banks remain the principal source of finance for a large part of the economy. given these important and distinctive functions, it is, perhaps, obvious that adverse shocks to the financial system and the banking industry can have detrimental effects on economic activity. the current financial turbulence, like several similar events in the past, has placed severe strains on the u. s. banking system with serious repercussions for the economy as a whole. the " macroeconomic view " of credit looking back over the past 50 years or so, credit extended to households and businesses has almost always declined just before, and during, economic downturns. and almost as often, a debate has ensued about whether the nation was in a " credit crunch. " 2 according to the white house council of economic advisers, " a credit crunch occurs when the supply of credit is restricted below the range usually identified with prevailing market interest rates and the profitability of investment projects. " 3 judging whether a credit crunch is happening in real time is not easy. it is extremely difficult to sort out the relative importance on the flow of credit of reduced demand due to weaker economic activity, reduced supply because borrowers appear less creditworthy, or reduced supply because lenders face pressures, such as a shortage of capital, that restrain them from extending credit. in other words, while demand considerations could certainly result in a decline in credit flows, a reduction in the supply of credit – caused either by bank balance sheet pressures or by banks reluctant to lend to lesscreditworthy borrowers – could produce the same result. figure 1 presents annualized quarterly percent changes in debt growth for home mortgages in the united states from 1952 to 2008, with shaded areas denoting national bureau of economic research recession periods. strikingly, the quarterly rate of growth for home mortgage debt, which includes mortgages and drawn - upon home equity lines, has typically declined before and during each recession and then picked up when economic conditions improved. what is different this time around is the runoff in home mortgage debt :