US banks tightened their lending standards in the first months of this year in a trend they expect to continue over the course of 2023, according to a survey published by the Federal Reserve.
The report, which is closely watched by Wall Street, comes as the financial sector witnesses fears related to the flight of deposits, on the back of the turmoil sparked by the collapse of Silicon Valley Bank and Signature Bank in March.
In recent weeks, shares of medium-sized banks recorded significant declines, amid investors’ concern about repeating previous scenarios when the flight of deposits precipitated the collapse of banks or played a major role in that.
And the Fed stated that when asked about its expectations for lending standards for the rest of 2023, “banks stated that they expect to tighten standards on all loan categories.”
The justifications cited more frequently include the expected deterioration in the credit quality of loan portfolios and collateral values, along with a decline in tolerance for risk, according to the survey related to bank lending practices.
The survey added that among other reasons, “concerns about the costs of bank financing, the liquidity situation in banks, and the outflow of deposits abroad.”
He added that the respondents noted a tightening of standards and a decline in demand in the first quarter of the year for various types of loans granted to businesses and families, noting that “in general, the tightening of standards for business loans was mentioned more frequently in medium-sized banks.”
In terms of commercial and industrial lending, medium-sized banks and others pointed more to their liquidity position and issues including growing concerns about the implications of legislative changes.
Banks’ concerns also included the uncertain economic outlook.
This article was originally published by RT.