The Federal Reserve has warned that the recent banking turmoil could fuel a broad credit crunch that risks slowing the US economy, while lenders told the central bank they plan to tighten lending standards due to worries about loan losses and deposit flight.
Two separate publications by the Fed on Monday highlighted mounting concerns that the March collapses of Silicon Valley Bank and Signature Bank and last week’s failure of First Republic will lead to pullbacks in lending and drive down asset prices.
The US central bank said in its twice-yearly financial stability report that despite “decisive actions” by regulators and officials to tackle the recent regional bank crises, worries about the “economic outlook, credit quality, and funding liquidity” could lead “banks and other financial institutions to further contract the supply of credit to the economy”.