How Banks Are Making It Harder To Apply For Credit
As liquidity concerns within banks are causing them to be more stringent with their credit lending terms, loan demands have also dropped due to two American banks collapsing last month.
Since the collapse of the Silicon Valley Bank, banking institutions have tightened their lending standards and are making it harder for people and businesses to apply for credit. Even though they are being conservative with lending, for the time being, economic activity has not deteriorated any further.
Most banks have reported no change or even slight growth in their business and profits, but banking institutions are still being very cautious. As liquidity concerns within banks are causing them to be more stringent with their lending terms, loan demands have also dropped due to two American banks collapsing last month.
Banking is not the only sector that has seen a change over the first quarter of 2023. Consumer spending, manufacturing and construction have all taken a dip in productivity and profitability. Tourism is starting to pick up towards the end of March as several companies reported a slight rise in customers. Also, along with tourism, the job market has picked up as fewer businesses completed mass lay-offs, as we saw from the tech sector late last year. Many companies have stated that finding new employees is easier as employee retention is better.
But a more stringent credit application process is the most significant change from the collapse of Silicon Valley Bank and Signature Bank. People feared that more would follow after the two banks collapsed, creating a banking crisis Americans hadn’t seen since the Great Depression. But regulators acted swiftly to change this opinion, which has worked. But due to these initial concerns, banks are acting more conservatively and making access to credit harder.
Many banks have stated that since the collapse of two banks last month, there has been a significant drop in demand for loans across all sectors. Many customers got in touch with their local banks to ensure that their deposits and savings were safe. But some banks are now reporting a rise in deposits since people are more confident that the American banking system is not on the verge of collapse.
The stricter restrictions on credit partnered with high borrowing costs as lead to many projects across several different industries are now being pushed back or cancelled altogether, which is going to affect the economy in the long term. Several banks have reduced the number of loans that they are willing to give out even though they have ensured people that their liquidity is acceptable and that there are no problems.
For consumers, 2023 is the most challenging year to get credit since 2013, which was over a decade ago. But apart from making lending more complex, the general consensus among consumers is that the banking collapse has not changed their view of using American banking institutions.
The Federal Reserve compiles a quarterly report stating the loan status of over 100 foreign and domestic banks. This report will include the collapse of Silicon Valley Bank and Signature Bank, so it should offer some more insight into banking stability and consumer behavior before, during, and after the crisis.