Geoffrey Haley, CEO of an American bank American National Bank and Trust Companyat the beginning of 2023, the crisis hit. Increase interest rates and the slowdown in the economy meant that credit growth was likely to halve, while local bank based in Danville, Virginia, USA. United States he focused on improving the quality and increasing the yield of loans, not worrying about their volume.

Then, in mid-March, the country’s two regional banks suddenly collapsed, and his own instincts told him it was only going to get worse. growth rate loans American National Bank and Trust Company may have fallen 25% in 2022 overall as its loan book rose 13% to about $2.1 billion. As we approach 2023, “my rule of thumb was that what you did last year, you will probably do half this year,” said Geoffrey Haley.

After a year-long campaign to raise interest rates indefinitely, the Federal Reserve is facing a major quagmire for the first time, as decisions made on hundreds of bank boards will either contribute to the credit crunch that is shaping the economy itself.

By raising the base rate at which banks lend money to each other, monetary tightening is making consumer and business loans more expensive and harder to obtain. In theory, this reduces the demand for credit-financed goods and services and, over time, also reduces inflation.

Household and business bank accounts remain relatively stagnant, a hedge against a too-rapid economic downturn. However, the total volume of bank loans stopped at almost 17.5 trillion. dollars since January.

Their year-over-year gains are rapidly declining, while the upcoming May Fed decision now hinges on whether officials decide it’s just an evolution of monetary policy or something deeper.

OUR inflationmeasured by her preferred index fed, remains more than double the 2% target, and for now, policy makers believe it justifies another increase in borrowing costs when they meet on May 2-3. However, the likelihood of a worse-than-expected credit crunch remains elevated after it collapses. Bank of Silicon Valley and Signature Bank last month, raising fears that the financial panic will deepen.

However, the worst was probably averted. Emergency measures taken by the Fed and the Treasury have protected depositors at both banks, helping to de-escalate what could be a destabilizing flow of capital transfers from smaller banks to larger ones. Finally, other actions by the Fed have helped maintain confidence in the banking system as a whole.