According to a report by CNN Money, lending is still down at the nation’s largest banks. There has already been a significant decrease in residential borrowing as banks have tightened credit standards and loan demand has decreased. Residential borrowers are overextended and have found it near impossible to get financing without a very good credit score and significant capital reserves. Loan demand has dropped and the personal savings rate has skyrocketed to 6.9%. Now that the residential side appears to be stabilizing, commercial real estate is showing weakness. Commercial and industrial lending has seen a precipitous decline as businesses are looking to get leaner and borrow less money.

Lending activity has been curtailed due to lender concerns over economic stability, involuntary unemployment and credit borrowers defaulting on credit agreements. Many consumers who have defaulted on loans during the economic downturn will find it more difficult to borrow in the future due to having an adverse credit rating. Adverse credit means that a consumer is unlikely to be able to gain access to traditional lines of credit for the purpose of debt consolidation, particularly if a tenant or homeowner has little equity.

Banks are lending less and they have a good reason for it. Many economists estimate that banks are only halfway through the losses that they will suffer over the next few years. While most subprime loans and residential loans have already been accounted for, many commercial loans are just starting to show weakness. Many commercial borrowers are looking to refinance loans that have interest rates that are resetting. These borrowers are unable to obtain financing because the value of their commercial properties has dropped below the principal owed on the property. Even M & A activity has seen a severe decline as banks are looking to lend less.

So what is the next shoe to drop? Credit cards.We are just beginning to see weakness in the credit card market. Credit card lenders American Express and Capital One are seeing increased delinquencies. The monthly charge off rate rose to a record high of 10.6% as consumers continue to grapple with the debt problem. Moody’s expects charge offs to peak at 12% meaning more losses for financial stalwarts such as JP Morgan, Bank of America and Citigroup. Many borrowers, who pay their bills on time, have seen their credit terms changed to cover the growing deficit from increasing charge offs. Individuals with good credit have seen their credit limits slashed and interest rates rise.

While the speed of the economic slowdown is declining; the economy cannot heal until unemployment, foreclosures and defaults stop cascading downward.