Forecasting Future Credit: Bank Predictions and the Future of Borrowing

Borrowing money for a house or business is becoming more difficult to borrow, and it will be even more difficult to get loans in the near future.

The latest survey of Federal Reserve loan officials was released on Monday.

It is shown that after tightening the credit across the board in the three months before April, most banks expect to raise the borrowed standards in the coming months.

"This will help firms and families to lack debt and help to push the economy into recession in the second half of this year," Michael Peirs wrote in a comment, head of Oxford Economics.

Borrowers Beware: The Credit Crunch is Here

Banks have been tightening credit standards since mid-2021, and are reporting weaker demand and even tighter standards in April. (To view a specific data point, tap or hover over that area of the chart.)

Net percentage of banks tightening lending standards for companies with $50 million revenue or more. Shaded areas are recessions.

 

Banks can tighten credit in many ways. For example, lenders may require more collateral or limit the size of credit lines.

Historically, as it becomes difficult to get a loan, the unemployment rate increases. Correlation suggests that if the credit is not available, businesses provide employment to less people.

Historically, as credit becomes more difficult to obtain, the unemployment rate tends to increase. The correlation shows that businesses employ fewer people when credit is not available.

"The bad news is that the low availability of credit, combined with its rising cost over the past year, raises recession risks," wrote Sal Guattari, senior economist at BMO, in a commentary ahead of the survey's release. "The good news, so to speak, is that it will also douse the flames of inflation and is a big reason why the Fed is signaling a possible break in the tightening cycle, which should at least limit the possibility of a hard landing for the economy." Can do. "

As the willingness of the bankers to lend is decreasing, so are the borrowers. Bankers reported weak demand for commercial and industrial loans and real estate loans for both commercial and residential properties.