US Banks Expected to Tighten Lending Standards, Survey Finds

US households and businesses had more difficulty borrowing at the start of the year. This trend should continue, according to the results of a quarterly survey, carried out among 84 banks in the United States, called ” Senior loan officer opinion survey on bank lending practices (SLOOS), posted Monday, May 8.

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In detail, this study was carried out between March 27 and April 7. It made it possible to question 65 American banks, as well as American branches of 19 foreign banks. As a result, the establishments surveyed said they expected to tighten standards across all lending categories ” until the end of the year.

« When it comes to business lending, survey respondents reported higher standards and weaker demand overall. from companies of all sizes in the 1st quarter, details this Fed survey.

A similar movement in the euro zone

For household loans too, “ lending standards have tightened », et, « at the same time, demand has weakened “, whether real estate, car, or consumer loans, underlines the survey. She, on the other hand, is remained virtually unchanged for credit cards “, adds the document.

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The recent bankruptcies of banks in the United States, which have weakened the entire sector, have made establishments more hesitant to lend money to their customers. This crisis came when it had already become more expensive to borrow money. In order to fight against galloping inflation, accelerated due to the war in Ukraine, the Fed has raised its key rate since March 2022.

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If the American banking context is marked by numerous bankruptcies at the start of the year, it is clear that access to credit is also proving more difficult on the other side of the Atlantic. The banks in the euro zone have, in fact, tightened their lending criteria to the economy in the first quarter at the fastest pace since the sovereign debt crisis in 2011, underlined the European Central Bank (ECB), on 2 May.

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A slowdown in economic activity to come?

From January to March, the approval criteria for business loans and lines of credit have been further tightened significantly net, according to a quarterly report. The decline in credit demand is proving to be the strongest since the global financial crisis “, completed the European institution. In France, Bercy is seriously considering a relaxation of the current conditions for granting mortgages. A track that is still far from unanimous. In a note published in early April, the Banque de France warned that such a measure ” could push many households into situations of over-indebtedness ».

The tightening of credit access conditions in recent months is not without consequences for the dynamism of the economy. On Monday, May 8, the Fed points out in a separate document – its semi-annual financial stability report – that ” continued strains in the banking system could lead to a broader credit crunch, leading to a marked slowdown in economic activity ».

US Treasury Secretary Janet Yellen, for her part, again assured that the US banking system is “ well capitalized “, Monday on the CNBC channel.

The United States is working on the risk of banking contagion

Asked about a possible increase in deposit insurance beyond the ceiling of $ 250,000 per customer, as has been done for bank customers SVB and Signature Bank, she referred to a recent report by the Deposit Guarantee Agency (FDIC) on the subject.

« We are reviewing this and would be willing to work with Congress to see if any changes need to be made. But for now, we have (…) other tools that we use, and that we can use again, if we think that the setbacks of a bank create a risk of contagion “, underlined the Minister of Economy and Finance of Joe Biden.

As to a possible suspension of short selling or short-sellingas in 2008 during the financial crisis, she stressed that this is a measure ” which has rarely been (used) “, but that when it was the case, ” it’s not clear that it made things better, maybe it made things worse ».

However, she found it necessary to implement control measures on this process which consists of borrowing shares, selling them, then waiting for the price to fall to buy back cheaper securities on the market and return them to the lender.

(With AFP)