Almost half of US banks are tightening their lending requirements, in response to a new quarterly survey from the US Federal Reserve Financial institution.
With the economic system sending combined alerts a few potential recession, traders and policymakers are paying shut consideration to financial institution lending. The much less lending that banks do, the extra probably that corporations of all stripes are to chop again on funding, which in flip slows the expansion of employment and the economic system total.
The most recent information come from the Federal Reserve’s senior mortgage officer opinion survey (SLOOS). Senior mortgage officers oversee underwriting at banks or different monetary establishments; the Fed talked to officers at 65 banks between March 27 and April 7.
Since March 2022, the Federal Reserve has elevated its benchmark rate of interest from 0% to a variety of 5% to five.25% in an effort to battle elevated inflation.
Banks are steadily elevating the price of enterprise loans
In the present day, 46% of the banks consulted by the Fed have raised the price of financing for business and industrial loans (C&I) as of the primary quarter this 12 months, which is a slight improve from 45% within the survey from the earlier quarter. C&I loans are necessary for serving to companies increase their operations and finance new gear amongst different issues.
The financial coverage committee on the Fed had entry to the outcomes of this survey earlier than they made their determination to hike by 25 foundation factors, so the brand new information is unlikely to impression whether or not the Fed pauses or hikes once more in June.
Not solely are the Fed’s rate of interest hikes elevating the price of capital for banks, however the latest spate of regional financial institution failures—Silicon Valley Financial institution, Signature Financial institution, and First Republic Financial institution—has additionally rattled public financial institution shares and made lenders extra skittish as they fret about potential deposit flight. That is the primary Fed survey of financial institution lending to be launched since these banks failed.
“Though banks of all sizes cited the identical causes for tightening, mid-sized and different banks extra regularly cited the financial institution’s liquidity place,” the Fed wrote in its SLOOS report.
It is a growing story and might be up to date.