According to the latest survey by the Federal Reserve, most U.S. banks are tightening their standards on every loan category as the country prepares for an economic hit amid pandemic.
Due to the ongoing pandemic, banks are monitoring the behavior of consumers or borrowers who don’t have access to funding. Because credit card balances are still unsettled since March this year, many banks are preparing for the possible global financial crisis.
The latest Senior Loan Officer Opinion Survey on Bank Lending Practices revealed that banks in the United States are tightening standards on auto loans, mortgages, and other loan products. The said new standards appeared to be the same rate as in 2008.
The survey makes it clear how lenders weigh the supply and demand during the time of pandemic and the collapse in sales of businesses. Additionally, some borrowers also ‘kept wanting to borrow even if they no longer had any desire to make new investments.’
Credit Card Freeze
Unlike mortgages and auto loans that have collateral for lending, credit cards are riskier for lenders. Since April, many U.S. banks have reduced credit limits without warning to consumers.
Mortgages are also not in demand at this time as more people use their money for food, utilities, and healthcare. People’s spare cash is used for food, supplies, medicine, and paying bills. With all these things happening, it is understandable why lenders are tightening borrowing standards.
More people lose their jobs and face pay cuts, which came as a result of the pandemic. If banks continue to grant loan products to people without jobs, lenders will suffer in the end.
The Fed Reserve survey received responses from 73 domestic banks and 21 U.S. branches and agencies of foreign banks.