By Jeff Cox
Lending conditions at U.S. banks are tight and likely to get tighter, according to a Federal Reserve survey released Monday.
The Fed’s closely watched Senior Loan Officer Opinion Survey showed that while credit conditions got more strict, demand declined as well.
“Regarding banks’ outlook for the second half of 2023, banks reported expecting to further tighten standards on all loan categories,” the Fed said in a survey summary. “Banks most frequently cited a less favorable or more uncertain economic outlook and expected deterioration in collateral values and the credit quality of loans as reasons for expecting to tighten lending standards further over the remainder of 2023.”
On the issue of consumer lending, banks “reported having tightened standards for credit card loans and other consumer loans, while a moderate net share reported having done so for auto loans.”
Banks also said they are raising the minimum level for credit scores when giving personal loans and are lowering credit limits in the $1.9 trillion consumer-loan space.
In the critical $2.76 trillion commercial and industrial lending segment, the survey noted that a “major” share of banks said they have seen lower demand for loans amid tightening standards across all business sizes.
Fed officials say they are aware of conditions in the banking sector, though they continue to raise interest rates to try to bring down inflation.
At his-post meeting news conference last week, Fed Chair Jerome Powell said he expected the loan survey to be “consistent with what you would expect.”
“You’ve got lending conditions tight and getting a little tighter, you’ve got weak demand, and you know, it gives a picture of a pretty tight credit conditions in the economy,” Powell said.
The Fed hiked its key interest rate another quarter percentage point at the meeting, taking it to a target range of 5.25%-5.5%, the highest in more than 22 years.
This article originally appeared here and was republished with permission.