Our highly experienced Kiplinger Letter team produces regular forecasts on the banking and finance sectors to help you make better investments and other financial decisions (Get a free issue of The Kiplinger Letter or subscribe). You will get them first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest forecast…
Banks are tightening standards for commercial and industrial loans. According to one survey, nearly 46% of banks pulled back lending to large and medium businesses, while nearly 47% did so for small firms.
A slowing economy and a reduced appetite for risk are two factors. Lenders also have tougher terms for commercial real estate loans, which are now approaching the record highs reached in 2008 and 2020.
As for consumer credit, standards have tightened across the board, except for government-sponsored enterprises and government residential mortgages. Expect this trend to continue.
Midsize banks, in particular, are poised to close the credit spigot because of concerns over the deterioration of credit quality among borrowers, higher funding costs and a recent outflow of deposits.
Meanwhile, stablecoins are under the microscope
Congress is working on new legislation for stablecoins, which are crypto assets whose value is pegged to a more stable asset, such as the U.S. dollar.
Likely provisions include requiring financial institutions and nonbanks issuing stablecoins to register with the Federal Reserve and creating insurance requirements and other standards for issuers. But Republicans and Democrats still disagree on a lot of specifics.
Recent incidents involving stablecoins highlight the case for regulation. The implosion of the popular stablecoin TerraUSD last year kicked off a domino effect that helped fuel the collapse of several crypto firms, including Alameda Research and FTX.
Stablecoins are mostly unregulated, and customers have no guarantee that the company issuing the digital coin has the appropriate reserves. The industry is mostly on board, eager for a dose of regulatory clarity.
This forecast first appeared in The Kiplinger Letter. Since 1923, the Letter has helped millions of business executives and investors profit by providing reliable forecasts on business and the economy, as well as what to expect from Washington. Get a free issue of The Kiplinger Letter or subscribe.
