Banks across the country are increasingly making it more difficult for both companies and individual consumers to secure loans, says a new just-released survey.
According to a Senior Loan Officer Opinion Survey issued by the Federal Reserve, exactly 51% of banks questioned said they had tightened up standards this spring for both larger and medium-sized businesses trying to obtain financing.
That 51% figure is significantly up from the 46% of banks who earlier this year reported that they were tightening their standards.
According to a narrative accompanying the survey, banks this spring reported tighter lending standards “across all categories of residential real estate loans,” with a concurrent tightening of business and commercial real estate loans.
Contrasting the latest bank survey with where things stood exactly a year ago, says the narrative, “banks reported tighter levels of standards in every loan category.”
Banks “most frequently cited a less favorable or more uncertain economic outlook,” as the reason for their tightening policies, expecting a “deterioration in collateral values and the credit quality of loans” for the duration of 2023.
The number of banks embracing tighter loan standards is the highest recorded since the Covid 19 outbreak in early 2020. Previous highs were recorded during the onset of the Great Recession in 2008. Between those two epochal events, a majority of banks consistently reported a loosening of loan standards.
Some 36% of reporting banks also said they were toughening up standards for credit card loans, while, conversely, the number of banks reporting a tightening of auto loans has decreased from 27% in the first quarter of this year to 15% this spring.
On business and commercial lending, the narrative notes that banks were generally reporting a reduced tolerance for risk, deterioration in their liquidity positions, and increased concerns about the effects of legislative changes as among the primary reasons for their loan tightening decisions.
The narrative also notes that a majority of reporting banks are expecting to “tighten standards on construction and land development loans and nonresidential loans,” with a growing number also feeling less generous in the multifamily properties area.
By Garry Boulard
