Accessing credit has become harder, Fed’s Beige Book shows

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By Bryan Mena, CNN

Businesses across the country said banks have tightened their lending standards since last month’s banking crisis, according to an economic survey from the Federal Reserve released Wednesday.

Overall economic activity held steady in recent weeks, with nine of the central bank’s 12 regional districts reporting no change, or slight growth; and three others reporting modest gains. The report captures the effects of last month’s banking turbulence on businesses and banks themselves.

“Lending volumes and loan demand generally declined across consumer and business loan types,” the Fed said in its periodic compilation of business survey responses, known as the Beige Book. “Several Districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity,” according to the economic summary.

Consumer spending, manufacturing activity and construction activity were either flat or down slightly this spring, businesses said. Tourism activity was a bright spot in recent weeks, with several firms reporting a notable pick-up.

Conditions in the jobs market improved; fewer businesses reported mass layoffs and more businesses said it has become easier to hire and that employee retention has improved. That coincides with government figures showing that the US labor market has lost some steam recently, though it remains strong. Some firms also said that the pace of price increases has slowed.

A tightening in credit conditions was perhaps the biggest change reflected in the latest Beige Book report. The collapse of Silicon Valley Bank and Signature Bank underpinned the worst banking crisis since the Great Recession, prompting swift action from regulators to quell fears of additional bank runs. While those concerns have largely subsided, many economists feared it would make it harder to access credit.

“Such a tightening in financial conditions would work in the same direction as rate tightening,” Fed Chair Jerome Powell said at a news conference last month after officials voted to raise the central bank’s benchmark lending rate by a quarter point, the ninth rate hike in a row.

Banking crisis fallout

Several small and midsize banks in the New York Fed’s district reported “widespread declines in loan demand across all loan segments.” Several bankers in the Cleveland Fed’s district said that customers have reached out to ask if their deposits were safe.

Other banks in the Richmond Fed’s district reported higher inflows of deposits following the collapse of Silicon Valley Bank, the report said. One large bank in the Chicago Fed’s district that also saw new deposits since the banking crisis said it was “uncertain whether the deposits would stick once there was more clarity about the health of smaller banks.”

One bank in the Memphis area also said that it saw a pickup in deposits from residents who had deposits “in distressed West Coast banks.”

In the San Francisco Fed’s district, where SVB was headquartered before it was taken over, accessing credit became notably tough. That uncertainty, coupled with higher borrowing costs, meant that planned projects across industries were either delayed or canceled, according to the report.

“Lending standards tightened notably, and several depository institutions opted to reduce loan volumes, especially for new clients, despite reporting ample liquidity,” the report said.

Other data shows a similar sentiment among consumers. The New York Fed’s latest Survey of Consumer Expectations showed that the share of respondents reporting that it’s harder to obtain credit from a year earlier climbed to its highest level on records dating back to 2013.

Still, consumer sentiment overall remains largely unaffected by March’s banking tumult, according to the University of Michigan’s latest reading.

The Federal Reserve releases a quarterly survey of senior loan officers from up to 80 large domestic banks and 24 US branches of foreign banks, which will offer additional insight into how credit conditions have shaped up since the meltdown in the banking sector. The survey for the first quarter, which would capture last month’s banking stresses, will be released in May.

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