Small business loan approval percentages at big banks dipped from 13.5% in April to 13.4% in May, according to the latest Biz2Credit Small Business Lending Index™. Meanwhile, approval ratings at small banks remained at 18.7%. Essentially, bank lending to businesses has stalled.
Banks are having a hard time getting new deposits, and when they do they have to pay higher interest rates to get deposits. The banks are getting hit on both sides of the equation, so they are not lending.
They began to tighten their lending parameters last year, and then the collapse of Silicon Valley Bank, Signature Bank and First Republic Bank raised concerns about liquidity throughout the industry earlier this year.
Small and midsize banks are losing deposits to big banks in the aftermath of the multiple bank failures.
A recent study by the Federal Reserve reported lending policies tightened for commercial and industrial (C&I) loans to large, midsize and small firms in the first quarter of 2023.
Meanwhile, banks reported weaker demand for all commercial real estate (CRE) loan categories, according to the Fed’s Senior Loan Officer Opinion Survey (SLOOS) on Bank Lending Practices.
Why have the banks become stingier?
According to the Fed, they cited an uncertain economic outlook, reduced tolerance for risk, deterioration in collateral values, and concerns about banks' funding costs and liquidity positions.
The banks also reported concerns about funding costs, liquidity positions, and deposit outflows as reasons for tighter lending standards for the rest of 2023.
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