Banks Are Getting Cold Feet Over Lending Amid Recession Fears

December 17, 2018, 2:23 PM UTC

After shares in U.S. banks hitting a 15-month low with their stocks officially in bear market territory, financial institutions are getting cautious.

That’s because many of them expect a recession sometime soon, as do most chief financial officers, according to the Duke CFO Global Business Outlook poll.

Banks are pulling back from riskier loans, Reuters found in an examination of federal data. The institutions turned down almost half of applications from people with low credit scores, versus 43% at the same time last year. Banks also close accounts for 7% of existing customers overall, with subprime borrowers feeling even more pressure.

Home-equity credit lines were down 7% overall. Growth in credit cards and commercial lending was down.

“We have been more cautious in the extension of credit, initial credit lines, the broad-based credit line increase programs,” said credit card lender Capital One Financial CEO Richard Fairbank at an industry event.

Debt should be a concern to corporations, as well. Former Federal Reserve Chair Janet Yellen last week said, “Corporate indebtedness is now quite high and I think it’s a danger that if there’s something else that causes a downturn, that high levels of corporate leverage could prolong the downturn and lead to lots of bankruptcies in the non-financial corporate sector.”

If there is a problem, Japan especially could feel the impact, according to Bloomberg. Japanese banks may hold a third of all loans made to U.S. corporations with high levels of debt. The total of such outstanding loans tops $1 trillion.