Why it’s getting harder to get a loan from the bank

Banks are purposely making it harder for consumers to obtain loans, according to a new survey conducted by the Federal Reserve. 

Standards for business, mortgage, credit card, automotive and other types of loans are continuing to be tightened by banks due to a rough economic climate.

The survey, which questioned loan officers at 81 banks, found that banks over the past three months have continued to tighten credit limits for consumer loans and restricted the amount of loans given to customers with poor credit scores. Banks were found to have increased the minimum credit score required for customers to obtain loans. Some reported that they are less likely to approve applicants that have a FICO score that is less than 680 for credit card loans.

Banks have also increased the minimum payment amount customers can make when it comes to chopping down outstanding balances.

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For business loans, the survey also found that banks have tightened “premiums charged on riskier loans, spreads of loan rates over the cost of funds, and costs of credit lines.”

The banks revealed that they are being more strict with their loan standards for multiple reasons, including: an uncertain economic outlook, a decreased risk tolerance, funding cost concerns, and effects of legislative changes.

Banks have also previously stated that these tougher conditions are due to the recent collapse of First Republic, Silicon Valley Bank and Signature Bank, and could continue for months.

New bank lending restrictions could have a domino effect on the economy. When banks tighten their standards on loans, it limits the demand for goods and services by making borrowing more unaffordable.

In June, Goldman Sachs Chief Economist Jan Hatzius said that tightened credit could help tackle inflation: it “should be manageable and perhaps even somewhat helpful in restraining demand growth so that supply can continue to catch up.”