A Federal Reserve report shows that banks raised their lending standards for business and consumer loans in the aftermath of three large bank failures.
FILE - The seal of the Board of Governors of the United States Federal Reserve System is displayed in the ground at the Marriner S. Eccles Federal Reserve Board Building in Washington, Feb. 5, 2018. A Federal Reserve report Monday, May 8, 2023, showed that banks raised their lending standards for business and consumer loans in the aftermath of three large bank failures, a trend that could slow the economy in coming months.
About 46% of all banks said they had raised standards for business loans known as commercial and industrial loans, up from just under 45% in the previous quarter. That increase was not as dramatic as in previous quarters, but banks were tightening credit before the bank failures. A year ago, slightly more banks were easing credit standards than raising them. Now nearly half are tightening.The Fed’s survey also found that a majority of banks plan to tighten their credit further this year.
Other economists say it is hard to know exactly when a pullback in lending will start to slow the economy and by how much. Federal Reserve staff economists have also forecast a “mild recession” for later this year, in part because of an expected reduction in lending.could slow the economy and help the central bank in reducing inflation“In principle, we won’t have to raise the rates quite as high as we would have had this not happened,” Powell said.
“I don’t know that it’s a full-blown credit crunch, but it’s certainly credit tightening," Goolsbee said in an interview with Yahoo Finance."That will slow the economy, and we absolutely should have to take that into account when we’re setting monetary policy.”and First Republic Bank
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