Tightening credit is finally nearing for both sides of the Atlantic, according to recent surveys of central bankers and commercial lenders.
After a new rate hike on Wednesday; Federal Reserve Chairman Jerome Powell signaled that a survey of senior loan officers out Monday, which typically polls over 80 banks, will likely show tighter lending standards. The extent to which lending volumes decline will be closely monitored.
Tight monetary policy and banking turmoil have caused borrower problems across the globe, from small businesses to large corporations. In Europe, corporate appetite for loans fell at a faster than expected pace in the second quarter, the sharpest decline on record.
If new U.S. regulations that would force big banks to increase their mandatory reserves by billions of dollars are added, it can be argued that long-awaited tightening credit conditions have begun to appear, although the economic impact is less clear.
With receding demand for business and industrial loans; banks like Citigroup believe that the rotation in the credit cycle could lower U.S. and European GDP by 1 to 2% by late next year.
American banks tightened credit conditions in the first quarter, Marvin Loh, global macro economist at State Street, said about rate hikes:"Their impact on the broader economy takes longer as overall liquidity in the system remains ample."
