Stricter lending standards among smaller banks is likely to slow economic growth overall.
Small and midsized banks, defined as domestically chartered banks not among the 25 largest, currently hold 67.2% of all outstanding commercial real estate loans, and 37.6% of loans overall.
These small players grease the wheels of the economy in all kinds of ways, particularly in specialized areas and regions. Think, Signature Bank's lending to Broadway or SVB's lending to startups.By the end of last year, banks were already pulling back on lending, as they saw more deposits head out the door, said Chad Littell, CoStar Group's national director of U.S. capital markets analytics.
Regular consumers had burned through excess savings, and needed money to pay the bills. And some companies — like the tech startups who banked at SVB — were seeing a greater need to access their cash, too. About 40% of loan officers said they had tightened lending standards in the commercial real estate space during the last quarter of 2022, per an analysis of the Fed's most recent quarterly survey of loan officers by CoStar. Only about 5% said they were tightening at the end of the previous year.Another huge area of office building financing — the market for commercial mortgage-backed securities , where banks bundle the loans and resell them to investors — is seizing up.
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