Taps Coogan – August 18th, 2022

Enjoy The Sounding Line? Click here to subscribe for free.

This is hardly a surprise but, as the following chart from Morgan Stanley via Acemaxx Analytics highlights, banks are rapidly tightening lending standards.

The chart above shows the percent of lenders that are tightening or loosening lending standards for commercial and industrial loans based on a survey by the Fed.

Given the deteriorating economic outlook, high inflation, and rising funding costs for banks, it would be shocking if this wasn’t happening.

Nonetheless, this is part of a process by which lower quality borrowers and zombie corporations are getting cut off from their sources of funding. We recently noted that junk bond issuance was grinding to a halt and IPOs have also all but stopped.

Given how much of the economy has been zombified by a decade of excessively accommodative monetary policy, don’t under-estimate the effects that this will have down the road.

Cashflow is king.

Would you like to be notified when we publish a new article on The Sounding Line? Click here to subscribe for free.