More US banks are tightening their lending standards, according to a new Fed report

This Monday, the Federal Reserve (Fed) published a new report highlighting that 46% of banks in the United States are tightening their lending standards, compared to 44.8% in the fourth quarter of 2022.

These figures are the most recent and correspond to the first quarter of the year, taking into account the recent banking turmoil, with the fall of Silicon Valley Bank and Signature Bank on March 10 and First Republic Bank on the first week of this month.

According to the report, “Banks reported that they expected to tighten standards across all loan categories, and more frequently cited an expected deterioration in the credit quality of their loan portfolios and in the values ​​of customer collateral.” said the entity.

As a domino effect when credit conditions tighten, financial institutions often raise their credit standards, in which case customers find it more difficult to acquire a loan. Therefore, borrowers could face higher interest rates and much stricter terms.

On the other hand, the less credit there is, the less consumption and important expenses there will be between companies and consumers. According to data from the Fed, for this first quarter of the year, the demand for commercial and industrial loans decreased by 55.5%, this is one of the largest falls since 2008.

For Joe Brusuelas, chief economist at RSM, “Policymakers and investors should anticipate that this will affect the real economy in the short term as investment, hiring, and growth slow due to the restriction of loans,” said.

Meanwhile, midsize banks are struggling, with rapidly rising interest rates that have risen tenfold since last year to 5.25%, yet Federal Reserve Chairman Jerome Powell had already anticipated that Tight credit conditions could affect economic growth in the medium term.