Banks Report Tighter Lending Standards and Weaker Demand for Loans

May 8, 2023

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8:55 pm

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12 comments

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Economics

Chart on C&I loans from Fed survey, blue boxes showing recessions added by Mish

Fed Survey on Bank Lending Practices

The April 2023 Fed Survey on Bank Lending Practices shows tightening credit and weakening demand across a wide range of consumer and commercial products

Commercial: Survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to large and middle-market firms as well as small firms over the first quarter.
Commercial: Banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
Consumer: Banks reported that lending standards tightened across all categories of residential real estate (RRE) loans other than government-sponsored enterprise (GSE)-eligible and government residential mortgages.
Consumer: Demand weakened for all RRE loan categories.
Consumer: Banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs).
Consumer: Standards tightened for all consumer loan categories; demand weakened for auto and other consumer loans, while it remained basically unchanged for credit cards.

Commercial Real Estate Tightening

More Tightening Coming

Over the remainder of 2023, 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.

Powell Says No Recession

Although the Fed consensus is for a recession, Fed Chair Jerome Powell’s personal opinion is no recession.

For the Fed’s admission of recession, please see Fed Minutes Now Predict a Recession This Year Along With Higher Unemployment

Market Ignores Fed Chair Powell’s Comments, Prices in More Interest Rate Cuts

For discussion of Powell’s personal opinion, please see Market Ignores Fed Chair Powell’s Comments, Prices in More Interest Rate Cuts

This post originated at MishTalk.Com

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12 Comments

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Perplexed Pete

11 months ago

“Bank Lending” = Private bank creating new, digital money out of thin air after the borrower signs the loan contract.

Salmo Trutta

11 months ago

N-gDp is still too high.

link to fred.stlouisfed.org

Reserve Bank credit shows inconsequential
tightening.

link to fred.stlouisfed.org

The FED’s preferred inflation index shows minor
deceleration.

link to fred.stlouisfed.org

The FED’s “holding pattern” will impact
R-gDp more so than inflation. Powell is no aggressive inflation fighter.

vanderlyn

11 months ago

Reply to Salmo Trutta

those are spectacular charts. thanks for posting. shadow stats concurs. M1 marked to the old standard is still up 120% since the plague started. we have stagflation. like we had from 1965 to around 1985. i’m old enough to remember many business owners failing………..

8dots

11 months ago

If the Dow close > 35K in June 30 it might reach 38K/40K later this year. Thereafter deep corrections.

Salmo Trutta

11 months ago

Powell has never tightened monetary policy. N-gDp has consistently remained too high. Powell is letting the economy burn itself out, just like Volcker did.

MPO45v2

11 months ago

Over the remainder of 2023, banks reported expecting to tighten standards across all loan categories.

So how are we going to profit from this? If banks are tight then alternative forms of financing will become popular.

EZCorp (ticker: EZPW) is the second largest pawn shop network and payday lender. Desperate times call for desperate vulture financing.

And when the deadbeats can’t pay….time to collect.

Encore Capital Group (ticker: ECPG) is the largest public debt collector. My analysis (for fun & entertainment) shows profits may start rolling in as soon as late 2024.

I suspect Congress to act soon to repeal predatory lending rules soon enough.

link to opensecrets.org

shamrock

11 months ago

Reply to MPO45v2

lol, can you imagine getting a commercial real estate loan or residential mortgage from a pawn shop?

MPO45v2

11 months ago

Reply to shamrock

no but I can imagine those people that don’t have jobs or can’t get loans doing it.

KidHorn

11 months ago

Reply to MPO45v2

It’s double edged sword. They’ll be able to buy things cheaper and might be able to charge higher interest on loans, but they also likely will have to sell for less and have higher loan losses. And they might be sitting on a lot of inventory that they’ll take a loss on.

One of the things that killed banks in 2008 was the collapse in collateral value of homes.

HippyDippy

11 months ago

Boy, a couple of banks go under and they all tighten up. Don’t they know our banks are strong and resilient?

KidHorn

11 months ago

Reply to HippyDippy

If I owned a bank, I would be doing everything possible to cover any potential bank runs.

vanderlyn

11 months ago

Reply to KidHorn

if you owned a bank, you’d rob it, just like the current and past owners do. the dumbphucks who stick up banks with guns and knives club, don’t get it. ps. the fedresny is the bank robber. walked passed it yesterday and had to chuckle.

Banks Report Tighter Lending Standards and Weaker Demand for Loans

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