Despite all the bleak economic news, a funny thing has been happening in the financial industry over the last few months: the banks have quietly turned on the lending spigot. Loan growth is still modest. And it remains heavily weighted toward the strongest corporate and consumer borrowers. But after several quarters of having their loan balances plunge or flatten out, several of the nation’s biggest banks are reporting increases. On Monday, Citigroup officials said the bank recorded loan growth, compared with a year ago, in almost every one of its businesses during the third quarter, and in almost every corner of the globe. Wells Fargo executives said new loan commitments to small businesses were up 8%, while lending to bigger companies has been growing for 14 months in a row. Across the industry, analysts expect credit card loan balances will start increasing before the end of the year. Still, the stocks of both banks, and the sector as a whole, dropped on Monday as the sluggish economy and revenue figures pointed to broad drags on the banks, including low returns on making loans and exposure to the European debt crisis. But the new lending numbers suggest that while the economy remains extremely fragile, the confidence of consumers and businesses may be more resilient than many experts had believed. There are myriad explanations behind the uptick in loan growth, including more customers taking advantage of ultra-low interest rates and borrowers in need of cash drawing on their credit lines. Others believe the downbeat headlines in recent weeks have been overblown. If the confidence clouds hanging over Europe and the United States were removed, the lending figures would be even stronger, analysts and bankers say. Housing remains the banking industry’s Achilles’ heel. Most banks have ratcheted up the underwriting criteria so that fewer new borrowers qualify for a loan, especially in the housing markets along the coasts that were hit hard by the recession. But there has been a modest increase in lending elsewhere. Over all, corporate lending has rebounded 7.2% after bottoming out in October 2010. Consumer lending, with the exception of housing-related loans, turned positive during the second quarter and has been gradually increasing since then, the data show. All told, total loan balances are near where they stood in mid-2007. So far, the revival in lending has not been strong enough to significantly move the revenue needle for the nation’s biggest banks. The poor performance of their Wall Street-related businesses and the elimination of once-lucrative overdraft and credit card penalty fees have weighed on their results. Meanwhile, the rise in new loan volume has not been enough to offset the lower profit margins on new loans as a result of the Fed’s decision to keep interest rates close to zero until at least 2013. But with the industry heavily dependent on loans for profit making, increased volume is a positive sign. [Dealbook, 10/17/11]