Monday, February 16, 2009
Global lending standards are tight; and why shouldn't they be when the unemployment rate is surging in most G7 economies?
But a closer look at key central bank loan surveys reveals that standards are indeed becoming increasingly tight in England, the U.S.A., and Canada, but to my surprise, are still easing in Japan. However, there is a general decline in demand for lending, which is slightly disconcerting, and a signal that investment and/or aggregate demand will be anemic in these economies for some time.
The following are the general conclusions of the central bank loan officer surveys across the aforementioned economies for the change in lending standards and loan demand from the July-September 2008 period to the October-December 2008 period.
The Bank of England
The Bank of England credit conditions survey reveals that standards for consumer and corporate lending remain tight, while demand for mortgage loans is rising (almost easing in net).
The European Central Bank
The European Central Bank conducts a very broad euro area bank lending survey. The general conclusions of the survey (there is much more in this report) are: that standards remain at elevated levels over the last six months. A little more worrisome - in terms of a signal for aggregate spending - is the sharp drop off in loan demand. This signals a general decline in demand for investment spending and durable consumption.
The Federal Reserve
The Federal Reserve Bank's senior loan officer survey shows that lending remains at record-tight levels across all loan types: commercial and industrial (C&I), consumer, and mortgage. Please see this post for an in-depth discussion of lending.
This chart highlights the abrupt shift of C&I and consumer lending standards midway through 2007. It also confirms that demand for lending is starkly weak.
The Bank of Canada
The Bank of Canada's senior loan officer survey tells a very similar story: strict, stricter, and strictest lending standards. Furthermore, Canada's lending environment has worsened considerably in the last three months of 2008.
The Bank of Japan
The Bank of Japan's senior loan officer opinion survey on bank lending practices at large Japanese banks is surprising to say the least. Amid a 3.3% fourth quarter '08 decline in economic growth, lending standards are still easing in net for loans to consumers and small and medium-sized firms. Standards to large firms went unchanged in net.
The survey also tells a story of falling demand for consumer lending, and that demand for firm lending is showing signs of dropping off (not shown here, but page 1 of the survey). Again, this is a signal that domestic demand for durables and investment goods are likely to be anemic for the time being.
The general conclusion is that standards are almost uniformly tight across the G7 economies, and that demand is weak, too. Both factors signal battered credit conditions, but also may highlight an ongoing collapse in aggregate demand.