Sorry folks, but I'm going to dump cold water on your bank-bashing parade. The popular chant that "banks aren't lending, banks aren't lending!" is grossly misconstrued.

How can this be? We've heard endless stories of businesses once peppered in loans being shut out. Homeowners turned away. Credit cards cut. We've been trained to nod Pavlovian style at the idea that banks aren't lending, and the economy can't recover until they do so. The CEOs of Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C), and Wells Fargo (NYSE:WFC) have been hauled before Congress and screamed at for reducing credit availability. All true.

Kind of
But lost in this debate is an important distinction: Are banks not lending enough, or are they just lending less than before?

Some really simple data convincingly shows it's most likely the latter.

Four times a year, the Federal Reserve goes around to every bank in the country and says, "Hey, give us information on the total amount of new commercial loans you've made." It's called the E2 survey. Note this is new loan issuance, not just legacy loans held on their balance sheet.

When you combine all four quarterly surveys, here's what you get over the past eight years:

Year

Combined Value of Quarterly Loan Issuance Surveys

2009

$296.4 billion

2008

$370.7 billion

2007

$324.8 billion

2006

$325.4 billion

2005

$265.6 billion

2004

$293.0 billion

2003

$252.4 billion

2002

$302.5 billion

Source: Federal Reserve.

What's important to know is this: Bank lending is down substantially -- yes -- but only when you compare it with 2006-2008, a period when credit was handed out at obnoxiously large (and dangerous) levels. Commercial loan issuance in 2009 was about equal to the years when relative banking sanity prevailed, even when adjusted for inflation. In constant-dollar terms, it's above 2004-2005 levels. I remember 2004-2005 -- no one tarred-and-feathered bankers for not lending enough.

The same trend is shown when you look at total commercial loans held by banks:

Year

Total Commercial and Industrial Loans Held by All Banks

2009

$1.34 trillion

2008

$1.61 trillion

2007

$1.42 trillion

2006

$1.18 trillion

2005

$1.04 trillion

2004

$919 billion

2003

$898 billion

2002

$960 billion

Source: Federal Reserve.

Yeah, 2009 was a serious drop. But for Pete's sake, it brought us all the way down to the deep, dark, abject poverty levels of ... 2007.

Blame the banks, or blame the businesses?
Rarely discussed in the banks-aren't-lending debate is whether loan demand is down. The Fed's most recent quarterly loan officer opinion survey found that, "Demand for most major categories of loans at domestic banks reportedly continued to weaken, on balance, over the past three months."

The reason loan demand has weakened goes beyond the obvious fact that businesses are reluctant to invest in a recession. A prime reason GDP has been crushed over the past two years is because retailers are liquidating inventory. Retailers like Wal-Mart (NYSE:WMT), Target (NYSE:TGT), and Best Buy (NYSE:BBY) often use commercial loans to finance goods that sit on their shelves. So when inventories are retracting, demand for commercial loans drops accordingly.

Where there is less credit flowing through the economy is in the securitization market. For most of the past decade, banks weren't really the ones making loans; they simply packaged brokered loans into collateralized debt obligations that were then sold to hedge funds, pension funds, and anyone else suckered into buying them. This market -- known as the shadow banking system -- went up in smoke (for good reason) after investors realized how opaque, and risky, the securities were.

But a decrease in securitized lending isn't necessarily something to blame banks about. If anyone, blame the buyers of these products that suddenly left the building. Blame hedge funds. Blame pension funds. Heck, blame Iceland, which gorged on securitized products until it went bankrupt.

Pitchforks down! Pitchforks down!
There are several reasons to hate banks. Not the least of which is that they've borrowed unprecedentedly from the Federal Reserves while loan issuance dropped, using the money instead to buy riskless government-backed securities.

But arguing that banks aren't lending enough only because they're lending less is a bit dramatic. It's amazing how many people are shocked that things recede during a recession.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Best Buy and Wal-Mart Stores are Motley Fool Inside Value recommendations. Best Buy is a Motley Fool Stock Advisor pick. The Fool owns shares of Best Buy and has a disclosure policy.