A month after liquidity shock, how’s banks’ lending business looking?

By Justin Ho

It’s been almost a month since the collapse of Silicon Valley Bank. Since then, much of the government’s response has focused on banks’ liquidity: ensuring that other banks have enough cash on hand to pay their depositors. But the turbulence also has the industry concerned about the lending side of the business. And we’re starting to see signs that banks are pulling back on making loans…If lending were to dry up and people can’t get the loans they need, that’d be a disaster for the economy. But Karen Petrou at Federal Financial Analytics said that’s not what’s happening now. For one thing, falling loan volume is also a sign that people just don’t want to borrow at today’s interest rates. “You certainly see that in mortgages, for example, where fewer and fewer people can afford to get a mortgage,” Petrou said, adding that there are still plenty of willing lenders for anyone who wants a loan. Like a big corporation, for instance. “We’re also seeing continuing credit available, even in some of the higher-risk sectors,” she said. “The cost of borrowing is higher, but the money is there.”