Fed Survey Shows Impact of Rate Hikes on Lending Conditions and Demand for Credit

In the USA, banks have tightened the requirements for lending somewhat. At the same time, demand for credit weakened, according to a survey by the US Federal Reserve.

The quarterly Senior Loan Officer Opinion Survey (Sloos) found that 46 percent of banks have tightened lending conditions to medium-sized and large companies. In the previous survey, it was 44.8 percent. In the case of smaller companies, the banks were more restrictive. According to the current survey, 46.7 percent of the financial institutions have tightened the award criteria here, compared to 43.8 percent in the previous quarter.

The data signals that Fed interest rates are starting to have an impact on the financial sector. The senior economist at VP Bank, Thomas Gitzel, considers the survey results to be very relevant. “When banks tighten the thumbscrews on lending, it has an immediate impact on the money supply,” he told Reuters. The financial sector is thus strengthening the Fed’s monetary policy. The survey strengthened hopes that the Fed would not implement any more rate hikes.

less demand

According to the survey, companies of all sizes asked for fewer loans than three months earlier. The demand for credit cards or financing for purchases such as cars has also fallen among private customers. This was accompanied by a lower willingness to grant installment loans to consumers.

Despite the recent turbulence in the industry, the Fed believes that the banks are in good shape overall. According to the semi-annual Fed report on financial stability published at the same time, the financial institutions had sufficient liquidity. In addition, the refinancing risks for the banks remained low.