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The numbers: Lending officers at major banks told the Federal Reserve on Monday that in the first three months of the year they tightened standards and saw reduced demand. The banks said they expected the tightening trend to continue all year.
Key details: In the first-quarter Senior Loan Officer Opinion Survey, respondents reported tighter standards and weaker demand for commercial and industrial loans to all sizes of firms. There were tighter standards for all forms of commercial real-estate loans.
The net percentage of banks tightening standards on crucial commercial and industrial loans was 46.0 in the survey, up from 44.8 in the fourth quarter.
The net percentage reporting rising demand for loans fell to negative-55.6 from negative-31.3.
For households, banks reported tighter lending standards for all residential real-estate loans other than loans backed by government-sponsored enterprises, or GSEs.
Banks reported tighter standards and weaker demand for auto and consumer loans. Credit-card demand was basically unchanged.
“Banks cited a less favorable or more uncertain economic outlook, reduced tolerance for risk, deterioration in collateral values, and concerns about banks’ funding costs and liquidity positions,” the survey said.
In a special question about the outlook for the remainder of the year, banks reported they expected to tighten standards across all loan categories.
Big picture: In the wake of the collapse of three major banks in less than two months, there is growing concern about a possible “credit crunch” where banks raise lending standards so much that it dampens growth. This can be a recipe for recession, especially if consumers pull back on spending at the same time.
Fed officials have said they will want to assess the magnitude and duration of this tightening and any caution by consumers.
As the Fed sharply raised interest rates over the past 14 months, banks have been caught in a vice, where their cost of funding deposits is rising and the value of their assets are falling.
What are they saying? “The recent turmoil in the banking sector doesn’t appear to have triggered a severe further tightening in credit conditions, but since lending standards were already being tightened to a degree only previously seen during recessions, the lack of any post-SVB squeeze is cold comfort,” said Paul Ashworth, chief North America economist for Capital Economics.
Market reaction: Stocks
DJIA,
SPX,
were mixed on Monday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
rose to 3.51%.
