One of the many serious concerns about the ongoing coronavirus pandemic is that affected firms will find it difficult to continue to pay interest and principal on their outstanding bank loans, while many firms will require additional loans to tide them over until normal levels of economic activity resume. It’s likely banks will want to help their customers weather the downturn, but some might be reluctant or incapable of extending a large volume of new loans, particularly when the specter of a possible, perhaps likely, recession looms.
A reliable indicator of the willingness of banks to make loans is the Fed’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices. Researchers find that bank lending tends to slow after an increase in the percentage of banks that are tightening lending standards. The FRED graph plots the compound annual rate of change in commercial and industrial loans alongside the net percentage
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