How SVB collapses, the banking crisis has made it more difficult to get loans
Banks have made it harder to get loans for consumers and businesses in recent months amid the collapse of Silicon Valley Bank and two other institutions, signaling a weaker outlook for the U.S. economy, according to a Federal Reserve survey.
Forty-two percent of banks said they have somewhat tightened lending standards for large and mid-sized companies in the past three months, according to the Fed’s Senior Loan Officer Opinion Survey. And 45% said they somewhat tightened lending criteria for small businesses.
A similar percentage of banks already made borrowing more challenging for consumers and businesses in the previous three-month period due to an increasingly uncertain economy and the Fed̵[ads1]7;s aggressive rate hikes.
While banks reiterated concerns about the economy and a reduced tolerance for risk in the latest survey, several small and medium-sized banks cited concerns about customer withdrawals, liquidity concerns and funding costs.
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The banks have also tightened the lending standards for consumer, car and credit card loans, according to the survey. Credit card balances have reached record levels and default rates have risen as low- and middle-income households struggle with high inflation.
The banks also said they expected to further tighten lending criteria for the rest of the year for all types of loans.
Demand for loans from households and businesses has also slowed, the survey said. Customers’ appetite for borrowing to finance home and car purchases has waned as the Fed has raised interest rates sharply over the past 14 months, raising borrowing costs.
In March, Silicon Valley Bank and Signature Bank collapsed as many customers withdrew deposits amid concerns about the banks’ survival amid significant investment losses. The value of their holdings of government bonds had fallen as the Fed raised interest rates sharply over the past 14 months.
The Fed, the Treasury Department and the Federal Deposit Insurance Corp. eased the panic by announcing that it would ensure depositors could get their money even if their accounts exceeded the FDIC’s $250,000 insurance limit.
But concerns rippled to other regional banks and last week First Republic Bank became the third bank to fail.
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Last week, the Fed raised its key interest rate by a quarter of a percentage point to a range of 5% to 5.25%, capping the biggest wave of rate hikes in 40 years to tame a historic surge in inflation. But the Fed indicated it might now stop, noting that the banking crisis would likely dampen economic growth and inflation, leaving the Fed with less work to do.
“In principle, we don’t need to raise interest rates quite as high as we would have had this not happened,” Fed Chair Jerome Powell said at a news conference.
