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Economic Effects of Tighter Lending by Banks

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Abstract

Banks tightened the criteria used to approve loans over the past year. Analysis shows that their tighter lending standards can be partially explained by economic conditions that reduce demand for loans and increase their potential risk, such as policy rate increases and a slowing economy. The unexplained part may reflect a restrained credit supply, specifically related to banks being less willing or able to take on risk. What are the potential economic consequences? Past credit supply shocks have had significant long-lasting effects on unemployment but less impact on inflation.

Suggested Citation

  • Vasco Curdia, 2024. "Economic Effects of Tighter Lending by Banks," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2024(11), pages 1-6, May.
    • Handle: RePEc:fip:fedfel:98186
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