Banks Tightened Credit Standards in Q4/2023
But the proportion making changes is slowing—a net 14.5% tightened standards on C&I loans for midsize and large businesses.
The Federal Reserve said U.S. banks reported stricter credit standards in the fourth quarter, although the proportion of those tightening standards shrank from the prior period.
The net share of U.S. banks that tightened standards on commercial and industrial (C&I) loans for midsize and large businesses, compared with the prior period, dropped to 14.5 percent, from 33.9 percent in the third quarter, according to a Fed survey of lending officers released Monday. That was the smallest such share since 2022.
About 53 percent of banks kept lending conditions basically unchanged. While demand for credit remains weak, the net share of banks reporting weaker demand for C&I loans among large and midsize firms declined to 25 percent, an improvement from the third quarter.
The figures in the survey, known as the Senior Loan Officer Opinion Survey, are calculated as net percentages, or the shares of banks reporting tighter conditions or stronger demand minus the proportion of banks reporting easier standards or weaker demand. The survey was conducted between December 18 and January 9.
The report suggests the severe credit crunch feared in the wake of the collapse of four regional lenders last year hasn’t materialized. While high borrowing costs have more broadly weighed on households as the Fed has lifted interest rates to a two-decade high, the economy has remained resilient.
“We had a fear in the spring last year with the collapse of Silicon Valley Bank and a few others that it would lead to a credit crunch,” Chicago Fed President Austan Goolsbee said on Bloomberg Television earlier on Monday. “We mostly haven’t seen more credit tightening than what you would expect just from the monetary policy and the rates—and that still feels like more of the same.”
Chair Jerome Powell last week made clear Fed officials’ next move is likely to be an interest-rate cut, though he said a rate reduction at their next policy meeting in March is unlikely.
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