Macro Monkey Says
Sleuths Turn to SLOOS
Every once in a while, a normally-obscure data point on the economy becomes of tremendous importance. To kick off this wonderful week, that data point was the SLOOS, or Senior Loan Officer Opinion Survey.
Most traders expected to go right from the SLOOS to the noose, but markets had a different idea in mind. Honestly, it kind of summed up 2023’s trade in a single day’s session.
In the morning hours, markets traded hesitantly higher in anticipation of nasty numbers from this report following 3 of the U.S.’s largest-ever bank failures occurring during the survey period. Then, the numbers dropped, markets sh*t themselves for a sec, then we were right back to the morning’s trepidatious trend.
Like has been occurring all year, we build up the importance and fear around these releases just enough to cause everyone to freak tf out on the release only to realize it ain’t as bad as expected. Let’s just hope that “ain’t as bad as expected” can hold true long-term.
Anyway, yesterday’s SLOOS report was, like others, not as bad as expected. Unlike other economic reports, it’s tough to pull out one number in particular from the Fed’s SLOOS report. But let’s try our best.
- 46.0% of Large and Medium banks reported tightening lending standards for commercial and industrial (C&I) loans
- That figure was 46.7% for small banks
- 62.3% of Large and Medium banks increased the spread on C&I loans, while 58.3% of Small banks did, compared to just 44% and 32% (respectively) in January
- The net percentage of Large and Medium banks reporting higher demand for C&I loans was -55.6%, and -53.3% for small banks
Those are just some of the highlights. 46.7% of small banks reporting tightening lending standards may sound wild, but it’s a marginal increase compared to what was expected from January’s reading of 31.8%.
Further, the dynamics of large and medium banks are fundamentally different than that of small banks. Since they carry massive balance sheets and endless demand for, well, money, they often don’t have to compete as hard with the interest rates they issue on originated loans, hence allowing the higher degree of spread increases, for example.
Regardless, small, medium, and large banks all expect to continue tightening lending standards over the next year. Citing expected slowing GDP growth and wary deposit dynamics, loan officers simply can’t have the confidence in their borrowers now that they did last year. Maybe they should just hit the gym instead. That’s always a good confidence boost.
To sum it up, tighter lending standards and weaker demand for those tighter loans was the story of the day. The slowdown in loan growth is arguably the primary concern, however, and directly speaks to the reaction of small and medium-sized businesses to JPow’s nuclear rate hikes.
And, (un)ironically, that lending tightening is exactly what Fed economists fear in their coin-flip expectations of a possible 2023 recession. Idk apes. Just keep your fingers crossed.