Decline in U.S. Commercial and Industrial Loans Raises Concerns

by Warren Seah

According to the Federal Reserve, U.S. commercial and industrial loans, which are a key driver of the economy, experienced a decline of $1 billion in the week ending July 19. This marks the second consecutive weekly decline. Previously, C&I loans reached a peak of $2.82 trillion in mid-March, just before the collapse of Silicon Valley Bank.

Key Details

In the latest week, lending by large banks increased by $2.5 billion, reaching $1.55 trillion. Conversely, lending by small banks decreased by $1.8 billion to $718.2 billion. This decline also marks the second consecutive weekly decrease. Additionally, total bank deposits saw an increase of $47.1 billion to $17.3 trillion during the same week. Deposits had peaked at $18.21 billion in mid-April.

Big Picture

Economists are closely monitoring lending data for any signs of banks reducing their lending activities. A significant pullback in lending could potentially lead to a “credit crunch” and have a rapid negative impact on the economy. Notably, commercial and industrial lending has experienced a decline for four consecutive months.

In relation to lending standards, there is a separate survey by the Federal Reserve set to be released on Monday. This survey examines whether banks are raising their loan standards.

Federal Reserve Chairman, Jerome Powell, has mentioned that the economy is currently facing challenges due to tighter credit conditions affecting households and businesses. During a press conference following the central bank’s decision to raise interest rates, Powell stated that lending conditions are tight and becoming even tighter, accompanied by weak demand. This gives an overall indication of a tight credit environment within the economy.

Market Reaction

Closing the week on a positive note, the Dow Jones Industrial Average (DJIA) experienced a higher closing on Friday. Additionally, the yield on the 10-year Treasury note (TMUBMUSD10Y) rose by 13.1 basis points to 3.97%.

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