Bank failures lead to some uncertainty, liquidity concerns around country, report finds

Tighter lending standards amid increased uncertainty and concerns about liquidity were reported by business contacts in several areas around the country, according to the results of the latest survey of business conditions by the Federal Reserve.

In its Beige Book for information collected before April 10, the Fed said several of its bank districts reported concern among business contacts related to the failure of two banks in March due to liquidity issues. The two banks were Silicon Valley Bank of Santa Clara, Calif., and Signature Bank of New York, N.Y. The

The Beige Book is published eight times a year. It summarizes comments received from outside the Federal Reserve System and, the Fed notes, is not a reflection of the views of agency officials. It collects information from a variety of business and nonbusiness sources.

Overall, according to the report, there was little change in recent weeks in economic activity. In fact, the report stated, the most districts reported “steady to increasing demand and sales for nonfinancial services.’

However, the failure of the two banks last months continued to have an impact on the outlook of the Fed’s contacts in several districts. Those included, the Fed said:

Boston:  Some contacts worried that smaller banks might restrict lending over liquidity concerns, putting a damper on economic activity.

New York: Conditions in the broad finance sector deteriorated sharply coinciding with the recent stress in the banking sector.

Dallas: Outlooks were largely negative, with contacts voicing concern about weakening demand, a potential recession, and the spillover effects of the recent bank failures on the broader economy.

However, contacts in two other districts (Cleveland and Kansas City, Mo.) reported that developments in the banking sector appeared to have very little impact on either recent economic activity or credit availability and “no pull back in planned capital expenditures, hiring plans or planned wage increases.”

Beige Book – April 19, 2023