The Fed on Monday released an April survey of senior loan officers, which showed that banks “reported expecting to tighten standards across all loan categories.”
“Banks most frequently cited an expected deterioration in the credit quality of their loan portfolios and in customers’ collateral values, a reduction in risk tolerance, and concerns about bank funding costs, bank liquidity position, and deposit outflows as reasons for expecting to tighten lending standards over the rest of 2023,” the Fed wrote in the report.
Three of the four largest bank collapses took place in recent months, putting the financial system on notice. Lenders are responding by being more careful about giving out loans.
A separate Fed report released Monday pointed to reduced lending as a potential threat to the U.S. economy, which is already cooling amid elevated interest rates.
“A sharp contraction in the availability of credit would drive up the cost of funding for businesses and households, potentially resulting in a slowdown in economic activity,” the report said.
The report noted that banks added $2.3 trillion in securities in 2020 and 2021. By the end of 2022, those assets lost more than $600 billion in value due to higher interest rates, it noted.
A survey released by the Fed on Monday found that 56 percent of experts are concerned about banking sector stress as a threat to the financial system, up from 12 percent in November. Meanwhile, 52 percent pointed to real estate, up from 12 percent, with respondents focusing on losses on commercial real estate loans.
