Banks Continue Tightening Credit

Lending conditions at U.S. banks are tight and likely to get tighter, according to a Federal Reserve survey released Monday.

The Fed’s closely watched Senior Loan Officer Opinion Survey showed that while credit conditions got more strict, demand declined as well.

Those results are important as economists who expect a recession believe that the most likely source will be from the banking system, which has had to respond to a series of 11 interest rate hikes as well as a momentary crisis in March when three midsize institutions failed.

“Regarding banks’ outlook for the second half of 2023, banks reported expecting to further tighten standards on all loan categories,” the Fed said in a survey summary. “Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023.”

On the issue of consumer lending, banks “reported having tightened standards for credit card loans and other consumer loans, while a moderate net share reported having done so for auto loans.”

Banks also said they are raising the minimum level for credit scores when giving personal loans and are lowering credit limits in the $1.9 trillion consumer-loan space.

Source: CNBC