US banks shy away from risk

 

US banks are becoming much more restrictive in their lending. This is shown by the latest results of the US Federal Reserve’s quarterly Senior Loan Officer Survey among banks. Should there be a wave of insolvencies, the economic recovery is likely to be very sluggish. For that reason, the US Federal Reserve is currently trying to secure the supply of credit almost single-handedly.

The standards for commercial loans as well as for loans to private households have tightened dramatically in the wake of the COVID 19 crisis. In the business subcategory, respondents reported that, on balance, credit conditions have been tightened considerably for both large and medium-sized and small firms. In addition, margins for riskier loans have risen sharply and the requirements for collateral have increased considerably. The main reason cited by the credit institutions for the significant tightening of the granting of corporate loans was lower risk tolerance. This was based in particular on the general economic outlook, sector and company-specific factors and the value of collateral. Last but not least, banks cited lower liquidity in the secondary market for C&I loans (loans in the corporate and industrial sectors) as the reason for restricting lending conditions.

The current crisis is particularly severe for the Fed. Ultimately, it is affecting a large part of the corporate sector through no fault of its own. Should there be a wave of insolvencies, the economic recovery is likely to be very slow. As a result, the Fed is attempting, practically single-handedly, to guarantee the flow of credit to businesses as well as to government and private households. In the process, various programs have been set up through which banks can refinance themselves with the Fed if the latter continues to grant loans and bridging loans to large and small companies as well as consumers and municipalities. Demand for these loans is likely to be high. It is already clear that the various facilities will probably have to be increased in the course of the year.

Rate this article


Thank you for your rating. Your vote:
There is no rating yet. Be the first! Current average rating: 1.00

Leave an answer

Your e-mail address will not be published. Required fields are marked *