Last Update: May 09, 2023, 02:07 IST
The reports come with concerns of deposit withdrawals in the financial sector on the back of turmoil following the high-profile collapses of Silicon Valley Bank and Signature Bank in March. (Image: Reuters)
In recent weeks, stocks of mid-sized banks faced brutal trading days while investors remained on edge.
A Federal Reserve survey released Monday said US banks tightened lending standards in the first few months of this year and are expected to continue through the rest of 2023.
The closely-watched reports on Wall Street come with concerns of financial sector deposit outflows on the back of turmoil following the high-profile collapses of Silicon Valley Bank and Signature Bank in March.
In recent weeks, stocks of mid-sized banks suffered brutal trading days while investors remained on edge for a repeat of earlier episodes in which deposit runs precipitated or played a key role in bank failures.
The Fed said Monday that when asked about their outlook for lending standards in the rest of 2023, “banks reported an expectation of tightening standards across all loan categories.”
The most frequently cited reasons include an expected decline in the credit quality of loan portfolios and a decrease in customers’ collateral values as well as a decrease in risk tolerance, the Senior Loan Officers Opinion Survey on Bank Lending Practices found.
Other reasons include “bank funding costs, bank liquidity conditions and concerns about deposit outflows,” the survey said.
In the first quarter, respondents reported tighter standards and weaker demand for various types of loans to businesses and households, the report said.
“In general, tightening of business credit standards was more frequently reported in medium-sized banks,” the report said.
On commercial and industrial lending, medium-sized and other banks often cited issues such as increased concerns about their liquidity position and the impact of legislative changes.
And among the banks’ concerns was an uncertain economic outlook.
Analysts recently warned that the full impact of March’s banking shock is yet to be seen.
With banks tightening lending standards, there could be less credit flowing to households and businesses – with ripple effects on spending and the wider economy.
Michael Pearce of Oxford Economics said in a note that it was “hardly surprising” that many banks tightened lending standards in the first three months this year.
“But the bigger concern is that most banks plan to further tighten standards during the rest of the year,” he said.
“This will reduce credit to firms and households and help push the economy into recession in the second half of this year,” he said.
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(This story has not been edited by News18 staff and is published from a syndicated news agency feed)
