American companies have started borrowing again, and the banks lending to them are the ones showing it first.
KeyCorp, Regions Financial and PNC all reported higher commercial borrowing in the second quarter. The increase came from three separate sources at once: new loans written, larger credit commitments agreed, and heavier use of credit lines that companies already had in place. Business deposits rose alongside the loan growth at several of these banks.
Regions Financial delivered adjusted earnings of 68 cents a share against the 63 cents analysts expected, a beat of nearly 8%, and pointed to broad-based loan demand, stable deposits, improving credit quality and continued growth in fee businesses such as wealth management.
Why drawing on existing credit lines is the interesting part
The three sources of loan growth are not equally meaningful, and the third is the most revealing.
A company that agrees a new loan has made a deliberate decision to invest. A company that increases its committed facility is preparing for something. But a company drawing down a credit line it already had is spending money now, on inventory, payroll, equipment or an acquisition.
Businesses do not draw on expensive credit lines for entertainment. When usage rises across several large regional banks simultaneously, it usually means companies see demand ahead of them and are funding the working capital to meet it.
Deposits rising alongside loans matters too
The detail that business deposits grew at the same time as lending points to something beyond borrowing.
When a company moves its everyday banking, payments and treasury activity to the bank that lends to it, the deposit balance follows the loan. That relationship is far more valuable to a bank than a loan alone, because deposits are the cheapest source of funding and payments generate fee income that does not depend on interest rates.
It also makes the loan itself safer. A bank that holds a company operating accounts can see its cash flows in real time, which is the earliest possible warning of trouble.
The rate environment cuts both ways
This lending revival is happening at an awkward moment.
The Federal Reserve held its policy rate at 3.50% to 3.75% on Wednesday with three officials dissenting in favour of an increase, and long-term borrowing costs rose sharply afterwards, with the thirty-year Treasury yield closing above 5.2% for the first time since 2007.
For banks, higher rates are initially helpful. The spread between what a bank earns on loans and pays on deposits is the core driver of profitability, and that spread tends to widen when rates rise, because loan rates reprice faster than deposit rates.
The difficulty comes later. Companies that borrowed at one rate face a different one when the facility is renewed, and credit quality across a loan book historically deteriorates a year or more after rates rise rather than immediately. Regions describing credit quality as improving is a statement about now, not about the loans being written today.
The capital rules are moving in the same direction
Banks are being encouraged to lend at exactly the moment the rules governing how much capital they must hold are being loosened.
Three proposals issued in March would rescind the 2023 capital framework and lower requirements for large institutions. The comment period closed on 18 June and the agencies are writing the final text, as our report on that process explains.
Lower capital requirements mean a bank can support more lending from the same equity base. Combined with rising loan demand, that is a powerful combination for near-term earnings, and a smaller buffer if the credit cycle turns.
What to watch
- Credit line utilisation rates in the next quarter, which show whether this is a trend or a single strong period.
- Net interest margin, the gap between what banks earn on loans and pay on deposits.
- Provision for credit losses, which is the first place deterioration appears.
- Deposit costs, since competition for business deposits raises what banks must pay to keep them.
- The final capital rules, which will determine how much lending capacity these banks actually have.
Outlook
Commercial lending is one of the more reliable indicators of what companies expect, because borrowing decisions are made by people with direct knowledge of their own order books rather than by forecasters.
Businesses drawing more credit, and moving more of their banking relationship alongside it, is consistent with the picture emerging elsewhere this week from consumer and industrial companies. The parts of the economy not tied to artificial intelligence spending are behaving as though conditions are solid.
The question that follows is whether loans written in a rising rate environment perform as well as loans written in a falling one. That answer arrives in 2027, not this quarter.
About the data: Commercial lending trends described are drawn from second-quarter 2026 results reported by KeyCorp, Regions Financial and PNC. Regions Financial adjusted earnings per share and the consensus estimate it exceeded are from its second-quarter 2026 release and analyst estimates compiled beforehand. The Federal Reserve target range and the three dissents are from the Federal Open Market Committee decision published on 29 July 2026. The thirty-year Treasury yield is a closing value for the same date. The capital proposals referenced were issued jointly by federal banking agencies on 19 March 2026 with comments closing 18 June 2026, and had not been finalised at the time of publication.
Reader note
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