The numbers: Major banks made it tougher for borrowers to qualify for a loan in the spring — and lending standards are likely to get even tighter by year end.
“Banks’ lending standards have tightened since 2022 for all loan categories,” the Federal Reserve’s Senior Loan Officer Survey for the second quarter reported.
Banks have tightened lending standards in response to rising U.S. interest rates, worries about a recession and the failure of several regional banks in the spring.
The failures triggered a rush of customer withdrawals that also forced banks to raise interest rates to stanch the flow of deposits.
Tighter lending standards have coincided with reduced demand for loans, especially among home buyers and large businesses planning big projects.
Overall lending is still near a record high, however.
Key details: The net percentage of banks tightening standards on crucial commercial and industrial loans rose to 50.8% from 46% in the first quarter and 44.8% in the 2022 fourth quarter.
That’s the highest level since the onset of the pandemic in 2020, when the index hit 71.2%.
Households were also feeling the pinch. Banks reported tighter standards for credit cards and most consumer loans.
Fewer banks beefed up standards for auto buyers, however. Instead, they required higher financing requirements on borrowers. Auto sales have surged this year.
Big picture: Getting a loan these days isn’t hard, but it is getting harder.
The failure of several midsized banks in the spring spooked regulators and Wall Street DJIA, +0.03%, a problem compounded by nagging worries about a recession. Banks have pulled back to husband their money and get a better read on the economy.
Yet a much-feared “credit crunch” in which banks dramatically cut lending has failed to materialize, giving support to the idea that the economy might avoid a recession. Fed officials had been worried banks would begin to freeze out borrowers and cause economic growth to seize up.
“So far that’s been the dog that has not been barking,” Chicago Fed President Austan Goolsbee said Monday in an interview with Yahoo Finance.
Market reaction: The stock market DJIA, 0.02% SPX, -0.07% was basically unchanged in Monday trades. The yield on the 10-year Treasury note TMUBMUSD10Y, 3.928% slipped to 3.93%.