According to the US Federal Reserve (Fed)’s Senior Loan Officer Opinion Survey (SLOOS) released on Monday, US commercial banks tightened lending standards earlier this year while demand for loans from both the business sector and consumers slowed down. The report reflects that the Fed’s interest rate hikes are beginning to hurt the US financial sector.
Since the collapse of Silicon Valley Bank (SVB) and Signature Bank (SB), the SLOOS report has been one of the gauges of banking sentiment. It indicates that 46% of banks increased their lending standards, making it more difficult for medium and large businesses to borrow compared to 44.8% in the previous survey in January.
The report shows that medium-sized banks have faced problems, leading other banks to tighten their lending standards to both households and businesses, which is likely to affect the economic growth of the United States.
The survey also found that banks have tightened lending standards for commercial and industrial lending, including household loans such as mortgages, home equity lines of credit, and credit cards. On the consumer side, most banks see the demand for credit cards and car loans, and other types of loans declined, though not as severely as last year.
Most banks expect the lending problems to continue into next year. This is largely due to negative expectations about the economic outlook, including concerns about the outflow of deposits and less risk tolerance.
The SLOOS survey also revealed that almost half of the banks surveyed considered the US debt ceiling as a major risk, but it’s not the top concern that it was when the survey was conducted in November last year. At the same time, more than 50% of banks view tensions in the banking sector as a risk. This is up from 12% from the survey in November last year.
Overall, the SLOOS report suggests that the Fed has a significant impact on the lending activities of commercial banks in the United States, and this is affecting the country’s economic growth.