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A report by the Federal Reserve Monday showed that banks are raising their lending standards for business and consumer loans in after three major bank failures and expect them to rise further this year, a trend that could slow the economy in the coming months and increase the risk of a recession.
The report, known as a survey of senior loan officers, asked banks whether they have tightened their lending standards by taking steps such as requiring higher credit scores, charging higher interest rates, or requiring additional collateral, and other measures, which generally make it difficult. for businesses and consumers to get loans.
The report follows other indications that the collapse of Silicon Valley Bank, Signature Bank, and First Republic Bank in the past two months caused other financial institutions to reduce their lending to conserve capital.
Federal Reserve officials and economists will closely examine the report, as tighter credit standards are expected to be followed by a reduction in lending. That could force businesses to pull back on expansion plans and reduce hiring, and could limit sales of cars and homes.
About 46% of all banks said they raised standards for business loans known as commercial and industrial loans, up from just under 45% in the previous quarter. That growth was not as dramatic as in previous quarters, but banks tightened credit before the bank failures. A year ago, fewer banks eased credit standards than raised them.
The Fed’s survey also found that most banks plan to further tighten their credit this year.
“That will starve companies and households of credit and help push the economy into recession in the second half of this year,” Michael Pearce, lead US economist at Oxford Economics, wrote in a note.
Respondents to the survey were 65 US banks and US branches of 19 foreign banks. Got the results from March 27 to April 7, good after Silicon Valley Bank and Signature Bank collapsed in early Marchwhich touches on the latest phase of the banking crisis. The first bank in the Republic failed a week agothe second largest bank failure in US history.
The Fed’s report said mid-sized banks — those with assets between $50 billion and $250 billion, such as the three banks that failed in March — were more likely to report tighter rates. standard.
Banks also said they are restricting credit for most consumer loans, including auto loans and credit cards and home equity lines of credit.
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