There’s a big warning sign that the wheels of the US economy may be grinding to a halt
Bob Bryan
BusinessInsider.com
May 3, 2016
Lending standards for business loans are getting tighter, according to the Federal Reserve’s “Senior Loan Officer Opinion Survey” (SLOOS).
“Banks have been tightening standards for both commercial and industrial (C&I) and commercial real estate (CRE) loans over the past few quarters and the latest data from the Senior Loan Officer Opinion Survey shows the most severe tightening in lending standards for these types of loans so far in the expansion,” said Daniel Silver, economist at JPMorgan.
C&I loans are a catch-all category for loans that help finance purchases or upgrades of equipment.
Essentially, the Fed surveys people in charge of giving out loans at financial institutions and asks them if it’s getting harder or easier to get a loan. For the past two quarters, these officers have been reporting standards tightening at a faster rate.
On net, 11.6% of respondents reported tighter lending conditions to midsize or large firms (13% reported tighter standards with 1.4% reporting eased standards), up from 8.2% net tighter in the first quarter of 2016. In fact, in the second quarter of 2015, a net 5.3% of lenders reported an easing of standards, so in a year’s time it has swung 16.9% on net toward tighter standards.
Or, as Bespoke Investment Group put it in a note Monday, “Both reported demand and reported supply of C&I loans are suggesting that credit will stop flowing to business from banks in the near future, if history is any guide.”
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