Save Net Percentage of Domestic Banks Increasing Spreads of Loan Rates over Banks' Cost of Funds to Firms
Fed surveys about 70 national banks and 20 foreign banks to better understand the changes in supply and demand of business loans. The survey includes updates of borrowing requirements and conditions, supply of lending and changes in demand.
Companies who report revenues over 50 million are categorized by Fed as large and middle-market firms.
If the difference between the interest rate of business loans and the bank's costs of capital widens, it is considered as tightening. Fed conducts the survey every three months and receives 5 types of feedback from the banks: tightened considerably, tightened somewhat, remained basically unchanged, eased somewhat, and eased considerably.
Net percentage of domestic banks tightening spread between rates and costs = Percentage of banks widening spread - Percentage of banks narrowing spread
When the economy is overheating, Fed usually accelerates rate hikes, resulting that banks are tightening loans. When the economy reverses its movement, the banks are even more unwilling to give loans, causing net percentage of banks tightening to soar and spread to widen. And when the economy recovers, banks are to ease loans and narrow spread.
Critical point is zero.
US Net Percentage of Domestic Banks Increasing Spreads of Loan Rates over Banks' Cost of Funds to Large and Middle-Market Firms2021 Q2-30.60 %
US Net Percentage of Domestic Banks Increasing Spreads of Loan Rates over Banks' Cost of Funds to Small Firms2021 Q2-16.40 %