A Federal Reserve report released last week revealed some early signs of credit contraction in the wake of the Silicon Valley and Signature Bank failures last month, with commercial bank lending plummeting by nearly $105 billion in the final two weeks of March, the largest, two-week decline in this data series since 1973. The data revealed that this dramatic slide was broad-based across commercial and industrial (C&I) and real estate loans, and largely driven by smaller banks, which accounted for nearly $75 billion of the record slide. This data is particularly striking given that the top 25 banks account for a majority of all lending in the United States, fueling concerns of a deeper credit contraction in the months to come as lenders of all sizes appear poised to reign in balance sheet risk further given the large drop in bank deposits and worsening economic outlook.
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