Lending declined in many parts of the US over the past few weeks, after financial sector troubles unleashed by the rapid collapse of Silicon Valley Bank (SVB), the US Federal Reserve said on Wednesday.
“Lending volumes and loan demand generally declined across consumer and business loan types,” the Fed said in its regular report on economic conditions known as the Beige Book.
“Several Districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity,” the Fed said.
Photo: REUTERS
The conditions in New York’s financial sector “deteriorated sharply coinciding with recent stress in the banking sector,” it said.
SVB’s collapse on March 10, after taking excessive interest-rate risk, led to a snowball effect in the financial markets as concerned investors looked for signs of weakness in the broader banking sector in the US and Europe.
Another US regional bank failed in the aftermath of SVB’s collapse, while Swiss banking giant Credit Suisse Group AG became the highest-profile casualty a few days later, when it was pushed by regulators to merge with UBS Group AG.
Regulators on both sides of the Atlantic took swift action to stem the outflow of bank deposits by concerned customers.
About a month later, the dramatic intervention by regulators appears to have paid off, with markets operating with far less volatility than they were in the days following SVB’s collapse, the VIX volatility index showed.
The Fed report also said that elevated employment growth in the past months appears to have moderated, with several Fed districts reporting slower growth.
However, wages have remained elevated.
Price levels rose moderately, although the Fed said that “the rate of price increases appeared to be slowing.”
Inflation remains stubbornly above the Fed’s long-term target of 2 percent, despite an aggressive campaign of monetary tightening that has brought interest rates up to a level not seen since the global financial crisis.
Overall economic activity was little changed in the past few weeks, the Fed said.
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