Back in January, when the Fed released its Fourth Quarter “Senior Loan Officer Opinion Survey on Bank Lending Practices”, it revealed something ominous: in Q4, lending standards across the US banking sector tightened for the second consecutive quarter. This was a problem because as Deutsche Bank pointed out at the time, two consecutive quarters of tightening Commercial & Industrial loan standards “has never happened before without it signalling an eventual move into recession and a notable default cycle. Once we have 2 such quarters lending standards don’t net loosen again until the start of the next cycle.”
Then, three months ago, we got confirmation of three consecutive quarters of tightening lending standards when senior bank loan officers reported the tightest lending standards on net since the financial crisis. Needless to say, if a recession and a default cycle have always followed two quarters of tighter lending conditions, three quarters does not make it better.
This post was published at Zero Hedge on Aug 1, 2016.