Banks Are Lending Less Money, and That’s a Formula for Recession

May 19, 2023

by Ryan McMaken Mises.org

Banks have been tightening their lending standards, and they plan to keep doing it throughout the rest of the year. Last week, the Board of Governors of the Federal Reserve released a new report on how much banks plan to expand or tighten lending in coming months. The report, known as the Senior Loan Officer Opinion Survey on Lending Practices, found that bankers expect a deteriorating economic picture in 2023, both for themselves and for their customers.

If accurate, this report is yet one more indication that the US economy is headed toward recession. In fact, it’s one of the more compelling indicators that a bust is unavoidable. This is because, as Austrian Business Cycle Theory shows us, a slowdown in bank lending goes hand-in-hand with a slowdown in monetary growth, which correlates with economic busts.