E US Banks Are Worried And Are Tightening Credit

The January 2019 Senior Loan Officer Opinion Survey on Bank Lending Practices addressed changes in the standards and terms on, and demand for, bank loans to businesses and households over the past three months, which generally corresponds to the fourth quarter of 2018. Regarding loans to businesses, respondents to the January survey indicated that, on balance, banks tightened standards for commercial real estate (CRE) loans, while standards and most terms on commercial and industrial (C&I) loans remained basically unchanged. (US Fed’s January 2019 Senior Loan Officer Opinion Survey)

As Krishen Rangasamy of the National Bank Financial illustrates in the chart below, bank credit growth in the US had been increasing quite strongly up to recently.  

However, the latest survey of US commercial banks by the Fed indicates that the banks are planning to sharply curtail the growth of commercial credit and that they are worried about their commercial loan losses.

According to the survey, up to recently the total bank credit extended for loans and leases was growing rapidly, in large part centered on commercial & industrial (C&I) loans. As of January, C&I loans were increasing at a rapid 11% year-over-year pace.

The real worry in this picture is that the recent strong credit growth pace cannot be sustained.

(The Fed regularly surveys on a quarterly basis up to eighty large domestic banks and twenty-four U.S. branches of foreign banks on their lending practices, and expectations. The survey monitors the net percentage of domestic banks tightening standards for C&I loans.)  

Accordingly, as the following chart illustrates, the latest survey data indicates that more banks are currently tightening lending standards than loosening them.

Although the linkage between survey data and actual credit growth may be suspect, nonetheless the trend identified is clearly in the direction of tightening rather than loosening the credit available for business loans.

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Gary Anderson 1 year ago Contributor's comment

Timely article!

Arthur Donner 1 year ago Author's comment

thanks Gary

It sounds almost counter-intuitive since interest rates are falling

Gary Anderson 1 year ago Contributor's comment

It could just be the overbuilt retail bumping up against a weakened consumer, prof. Things seem to be perking up this month, but is it sustainable, prof?

Arthur Donner 1 year ago Author's comment


it could be some retail demand fall off, but i fear that it reflects more the economic pessimism that is creeping in because of the expected ec slowdown and the related fact that the recovery is sounding a bit long in the tooth.