Lede

With the Fed's decisions about interest rates affecting lending, bank credit has been stagnant since January and with a falling year-on-year growth rate, concerns are rising about a credit crunch.

Summary

• Rising interest rates and a slowing economy mean that loan growth is expected to fall by half as banks focus on better-quality, higher-yielding credit, rather than volume
• The Fed's decision to raise the benchmark interest rate that banks use in lending money to each other has made consumer and business loans more expensive and harder to get
• Overall bank credit has been stalled at about $17.5tn since January, with its year-on-year growth falling fast
• Household and business bank accounts remain relatively flush, but the potential for a worse-than-expected credit crunch remains elevated in the wake of recent bank collapses
• The Fed is facing its first significant pothole as the decisions made in hundreds of bank executive suites will either add up - or not - to an economy-shaping drop in lending
• Bank officer surveys are being monitored to understand sentiment among those driving credit decisions, with the results of the Fed's quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices being presented at the central bank's next meeting
• Survey data is key to understanding whether financial institutions are pulling back even more on their credit standards, and will give a sense of whether lending standards are tightening or loosening and whether loan demand is increasing or decreasing
• The Fed's next interest rate decision in May now hinges on whether policymakers decide the current slowdown is just monetary policy running its course or something deeper
• The concern is that too swift an economic comedown will cause a credit crunch, with less lending, tighter credit standards and higher interest on loans already taking shape.