Evening Brief – 02.07.24
SLOOS Reports Tighter Lending Standards
The Federal Reserve Senior Loan Officer Opinion Survey (SLOOS), released earlier in the week, showed that through the fourth quarter of 2023 U.S. banks tightened their lending standards – again.
Respondents indicated tighter requirements and lower demand for commercial and industrial (C&I) loans to businesses of all sizes. Furthermore, banks reported tighter requirements and lower demand across all commercial real estate (CRE) loan categories. Credit card, auto, and other consumer lending rules also tightened, while demand fell.
While banks continued to tighten credit, fewer of them did so in the fourth quarter, indicating that the trend may be moderating.
The survey demonstrates that credit conditions are gradually stabilizing, noted Paul Ashworth, chief North American economist at Capital Economics. He observed that the current amount of tightening is consistent with historical norms, implying that credit markets may recover.
“The Fed’s latest Senior Loan Officer Opinion Survey suggests that banks have put last year’s SVB regional bank crisis firmly behind them and, with long-term interest rates markedly lower than the peaks reached last October, loan demand appears to have picked up a little too. The credit squeeze is over,” he said.
However, some economists remain doubtful that credit challenges have been overcome. James Knightley, chief international economist at ING, highlighted that the survey revealed a decline in the number of questions from potential borrowers about the availability and terms of new credit lines or increases in existing lines.
“This suggests US businesses remain very cautious and are reluctant to put money to work right now, with the report specifically stating that there appears to be decreased customer investment in plant or equipment and decreased financing needs for inventories, accounts receivable, and mergers or acquisitions,” he said in a note.
Although the Federal Reserve has lowered market expectations for a March interest rate cut, many analysts and economists still expect one in May, with the current SLOOS data having no impact on those forecasts.