Bank of America Corp (BAC): The Big Bank Temptation in 7 Charts

7. Pigs get slaughtered

Source: Federal Reserve Board, Senior Loan Officer Survey on Bank Lending Practices

History has a way of repeating itself, and this chart paints a sad picture of what’s to come. Since at least 1990, banks have repeatedly shown an inverse relationship between loan demand and credit standards.

Repeatedly and conclusively, when there is strong demand for loans, banks loosen their standards to win deals.

Specific examples of loose credit standards have become household phrases since the mortgage crisis: low or no doc mortgage loans, funding a loan without verification of income, lowered FICO score requirements, and approving loans with tighter debt ratios. Loose standards lead to bad loans, which leads to losses.

So what does it all mean? It means that the big banks are getting bigger. It means the financial system is still as fragile as ever. And yes, banks have more capital today, and that improvment should be applauded.

But as banks start to grow again, you have to decide if today’s higher capital levels are sufficient for an industry with declining profitability, tightening margins, extreme concentration of assets, and a history of loosening standards at the exact moment they should be tightened.

The choice is yours, but my money is staying in my local community bank

© 2013 The Motley Fool. All rights reserved. The Motley Fool has a disclosure policy. This article was originally written by Jay Jenkins and appeared on Fool.com.