They are paid not only loan interest but also loan principle. Letting debts run off means receiving loan principle back, not merely interest. It builds liquidity, and loan principle fully repaid cancels liabilities while realizing assets at full par value. In today's rate environment, it can also be reinvested extremely profitably.
Banks and other financial firms can invest in existing securities purchased at steep discounts and high interest rates, without making net new loans. This is easy because other holders of debts that involve any credit risk are selling hand over fist, scrambling to get into either treasuries or bank deposits, the latter to exploit their FDIC guarantee.
Thus, right now banks can meet their liquidity needs and increase their income simply by letting their debtors repay them on schedule, and parking the proceeds in existing distressed securities. This will be much more profitable in the medium term than forcing loans onto reluctant overstrapped deadbeats in response to some nonsensical government mandate.
Corporate bonds pay 9%, bank deposits cost them 2%. Spreads that wide make for healthy banking. Consumer loans at 5% with loan losses at record levels, are not nearly as attractive.
The simple truth is that unless the better corporate credits are all willingly "bid" by others to low rate spreads, there is no great reason for banks to lend to joe deadbeat.
Jason:
1) Do you really work for a financial institution?
2) Are you aware of certain economic factors right now - like rising unemployment, reduced spending, etc.
Sure they’re are a number of consumers and businesses who should pay their loans off - that is typically the goal. However, to restrict lending (which includes renewals) will actually dramatically increase non-performing assets which raises big red flags with bank investors and with the regulators. Also when liquidity is tight corporate bond rates will go down not up.