US Banks Tighten Lending Conditions: Federal Reserve Survey

The increase in the cost of borrowing had already restricted access to credit last year, a trend that has continued into the first quarter of 2023, a period marked by the collapse of two regional entities. According to the Federal Reserve’s lending survey, the proportion of US banks that tightened lending conditions for medium and large companies increased by 46%, compared to 44.8% in the fourth quarter of 2022. In addition to stricter conditions, the Fed report shows how the demand for commercial and industrial loans contracted by 55.6%, the steepest drop since that registered in 2009 during the great financial crisis.

The publication of the Federal Reserve survey among banks on the granting of credit is an important reference on how the country’s regional banking crisis is impacting financing, which has already claimed three entities in just over two months . And it is also a key indicator for the Fed’s monetary policy, as an acceleration of credit tightening may amplify the impact of rate hikes on the US economy. households and businesses weigh on economic activity, hiring and inflation,” the Fed’s Open Market Committee (FOMC) said last week.

The financing survey that the Fed published yesterday hardly arouses interest, but, on this occasion, it collects first-hand the willingness to lend of US banks, with the opinions of the 80 largest domestic banks, and of bank branches foreign. The survey was conducted between the last week of March and the first week of April, so it does not reflect the latest financial turmoil, but it does reflect the collapse of Silicon Valley Bank. Fed Chairman Jerome Powell already suggested last week that it would not be necessary to raise rates so much in the face of credit crunch. In fact, the market is not ruling out a possible rate cut already this summer.

In the euro zone, the relevance of this survey has already been demonstrated, which showed how in the first quarter of this year European banks have closed the credit tap with the greatest intensity since the sovereign debt crisis of 2011. Such restriction, motivated Due to the fear of lending that has spread among banks as a result of the failure of Silicon Valley Bank, it was decisive for the ECB to raise rates last week by 25 basis points, and not by half a point. It was the slightest hike since the rate hike cycle began last July.

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