What we learned about banking conditions
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One big question of the moment is how recent bank failures will impact lending conditions across the country. As anecdotal evidence trickles in, we are getting early answers.
Why it matters: It's difficult to quantify how much credit conditions are tightening (or loosening, for that matter). In that context, the Beige Book — a collection of anecdotes compiled by regional Fed banks, released two weeks before each policy meeting — takes on more importance.
Driving the news: The latest edition, based on information compiled after the bank collapses, said that "banks tightened lending standards amid increased uncertainty and concerns about liquidity" across several Fed districts.
- Of the 10 regional Fed banks that mentioned banking conditions in their respective summary, six — including New York, Chicago and Kansas City — reported tightening standards for loans, according to Bank Policy Institute economist Bill Nelson.
- The last two editions, on the other hand, had little mention of changes to loan standards.
Details: In the region covered by the San Francisco Fed, nonprofit organizations reported limited access to credit amid "heightened uncertainty in the banking sector."
- Generally, lending standards "tightened notably" in the district. Depository institutions looked to trim loan volumes "despite reporting ample liquidity."
The bottom line: It's unclear the extent to which tighter lending standards put a brake on economic growth and whether it sticks even as the banking turmoil appears to fade.
- Despite the risks of tighter credit conditions, New York Fed president John Williams suggested there is uncertainty about if the economy shrugs off any effects.
- "There's a lot of factors that tell me the economy is doing better and could even surprise further on the upside," Williams told reporters Wednesday, according to a Bloomberg report.
