As market participants continue to assess the potential fallout from this year’s bank failures, the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) released earlier this week revealed additional tightening of credit conditions and, more importantly, a sharp contraction in the demand for loans as businesses scale back growth plans in the face of slowing demand and worsening economic outlook. According the latest SLOOS, which measured bank lending practices and business sentiment at the end of the first quarter, 46% of banks tightened credit for commercial and industrial (C&I) loans in the first quarter for large and small businesses, the highest share since the third quarter of 2020. While this was only a modest increase from the fourth quarter given already-tighter credit standards driven by 500 basis points of FOMC rate hikes, early data for the second quarter suggests even further tightening, as the National Association of Credit Management April index revealed that “approvals of new credit plummeted and is now well into contraction territory.”
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