via creditnews:
As interest rates bite and fears rise over an impending credit crunch, bank lending shows the first signs of contraction, according to new research from UBS.
The data include all types of lending to individuals except for mortgages and credit cards—as well as business loans.
“Overall bank lending growth is slowing, consistent with the rapid pace of rate hikes but also potentially due to reassessment of lending within the banks themselves,” wrote UBS economist Jonathan Pingle in a note to clients.
The underlying forces
According to UBS analysts, lending is shrinking for two key reasons: higher interest rates and tighter lending standards.
In the wake of post-Covid inflation, the Feds hiked rates at the fastest pace since the ‘70s. In just over a year, rates surged by 5%—making credit more costly and less appealing.
In addition to the impact this aggressive tightening has had, banks are now ultra-cautious about who they lend money to.
Since the failure of Silicon Valley Bank, the banking sector has been on edge. Banks fear the slightest rumor of instability could lead to the dreaded bank run.
In fact, according to the Fed’s latest loan officer survey, most US banks have tightened standards for business and consumer loans.
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