Yellen Warns of Tougher Lending Environment in Aftermath of Bank Failures

Apr 24, 2023Federal Regulation, News

Following the recent failures of Silicon Valley Bank and Signature Bank, U.S. Treasury secretary Janet Yellen warned that a tougher lending environment could affect the Federal Reserve’s campaign to raise interest rates.

“Banks are likely to become somewhat more cautious in this environment,” Yellen said in an interview. “We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come.”

PYMNTS recently wrote that a change in lending habits “couldn’t come at a worse time for small and medium-sized businesses (SMBs) already struggling to access credit.” Business-focused hotels could be especially affected as lenders seek more capital from hotel owners due to concerns about drops in occupancy rates and reduced property values.

PYMNTS’ “Main Street Health Report,” a recent collaboration with Enigma, found that more than 25 percent of SMBs depend on bank-issued loans, and 18 percent depend on personal loans from a bank. Both could be at risk while banks reconsider lending strategies.

The study also found that 75 percent of Main Street businesses said they would run out of cash within two months. 60 percent said they believed the country would fall into a recession in the next year, and that there is an unmet need for financing options to protect both consumers and businesses.

Yellen’s warning came two days after Jamie Dimon, CEO of JPMorgan Chase, said that although the economy has been on a healthy uptrend, “the storm clouds that we have been monitoring for the past year remain on the horizon, and the banking industry turmoil adds to these risks.”

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