Every Friday, the Federal Reserve Board of Governors releases its report on the Assets and Liabilities of Commercial Banks in the United States (H.8 data) for the previous week. The most recent report includes the percent change for bank credit during the second quarter of 2023, which fell by 0.9 percent. Bank credit includes treasury holdings, loans made to commercial and industrial companies, real estate loans, and consumer loans like credit cards. In the second quarter, residential real estate loans grew by 3.9 percent, while consumer loans increased by 6.4 percent. Credit cards, which make up a significant part of consumer loans, also increased by 10.9 percent in the second quarter.
These numbers by themselves might not mean much. When you include confidence indexes like CBER’ s Business Confidence Index for Southern Nevada or The Conference Board’s Consumer Confidence Index, however, consumer and business confidence has been rising during the second quarter of 2023. This improvement in confidence may explain why consumer and real estate loans have increased. According to the Senior Loan Officer Opinion Survey on Bank Lending Practices, it may also explain why this occurred despite tighter lending standards across all categories of lending to businesses and households.
So, why did bank credit fall? Commercial and industrial loans were the only ones to be affected by the tighter lending standards, as the H.8 data reports a decline of 2.2 percent during the second quarter of 2023. The biggest decline in the components of bank credit was securities in bank credit like treasury and agency securities, which declined by 9.6 percent in the second quarter. This could be a result of the aftermath of the collapse of Silicon Valley Bank back in March. More uncertainty will exist for treasury securities after the downgrade of the U.S. credit rating by Fitch from AAA to AA+. This is the second downgrade by a major credit rating agency, since S&P’s prior downgrade from AAA to AA+ in August 2011.