The banks have been tightening their lending standards over the last three months and seeing their commercial customers being more cautious about taking on more debt amid rising interest rates and economic uncertainty, according to the Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS).
At the household level, circumstances appear more fraught. Banks’ standards for approving home and credit-card loans have tightened but banks are noticing an uptick in demand for home equity lines of credit (Helocs) and credit cards, implying that households are really feeling squeezed by higher inflation.
Not to mention, since the crisis, banks have generally stopped lending to borrowers thought to be too risky, with much of that lending activity finding its way into the so-called “shadow banking” system of hedge funds, mortgage lenders, insurers, and other nonbank financial institutions.
“Something not fully appreciated is the changing role of banks post Dodd-Frank,” Mark Rowan, CEO of private-equity firm Apollo Global ManagementAPO +0.89% (ticker: APO), said on a call with analysts last week. “We estimate that less than 20% of debt capital to U.S. businesses and consumers is provided directly by the banking system.”
Nevertheless, the traditional banks are still being cautious. During a call with analysts last month, JPMorgan Chase JPM +0.06% (JPM) CEO Jamie Dimon reiterated his call that an economic “hurricane” is coming, though he acknowledged there could be a mild recession. Bank of America BAC +0.27% (BAC) CEO Brian Moynihan has sounded cautious but optimistic saying customers’ “resilience and health remains strong.”
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How fast the prices increase is critical. A stock that rises by 10 times in five years, a five-year ten-bagger, has a compounded annual return of about 58%. One that goes up 10 times in 10 years has a 26% annualized return. Stocks of many h
