What the Current Banking Turmoil Means for Small Businesses
Concerns about the banking system have been top of mind in recent weeks. The worries specifically pertain to what banking turmoil means for business and consumer lending activity. According to JPMorgan CEO Jamie Dimon, "The banking situation is distinct from 2008 as it has involved far fewer financial players and fewer issues that need to be resolved, but financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending."
The Dallas Fed’s March Banking Conditions Survey — which covers banks in Texas, New Mexico, and Louisiana — suggests things aren’t looking great from the banking side. From the report:
Loan demand declined for the fifth period in a row as bankers in the March survey reported worsening business activity. Loan volumes fell, driven largely by a sharp contraction in consumer loans. Loan nonperformance increased slightly overall, with the only notable rise over the past six weeks coming from consumer lending. Credit standards and terms continued to tighten sharply, and marked rises in loan pricing were also noted over the reporting period. Banking outlooks continued to deteriorate, with contacts expecting a contraction in loan demand and business activity and an increase in nonperforming loans over the next six months. Some contacts cited waning consumer confidence from recent financial instability as a concern.
The degree to which lending standards tighten and costs go up will determine how severely consumers and businesses are impacted by what’s been happening in the banking system.
Because we have yet to fully understand all of this, we certainly can’t rule out the possibility things could turn out okay, especially as it’s been a while since we’ve heard about another major bank dealing with financial issues.
And while the odds of a recession may be up, the economy continues to be bolstered by some big tailwinds — including the fact that consumer and business finances are in great shape.
Source: Yahoo Finance