US banks reported tighter credit standards and weaker loan demand from both businesses and consumers during the second quarter, Federal Reserve survey data released on Monday showed, evidence that the central bank’s interest-rate hike campaign is slowing the nation’s financial gears as intended.
The Fed’s quarterly Senior Loan Officer Opinion Survey, or SLOOS, also showed that banks expect to further tighten standards over the rest of 2023.
“The most cited reasons for expecting to tighten lending standards were a less favorable or more uncertain economic outlook, an expected deterioration in collateral values, and an expected deterioration in credit quality of CRE (commercial real estate) and other loans,” the Fed said.
The Fed has raised interest rates by 5.25 percentage points since March 2022, and its surveys and hard data have shown banks have been slowing their lending in response.
Monday’s SLOOS report – which Fed policymakers had in hand last week when they decided to deliver an 11th interest-rate hike after skipping one at their June meeting – suggests credit tightening is ongoing.
