Lending standards → Credit spread

Common explanation (Cause · same direction): When banks tighten lending, borrowing becomes harder and costlier for companies.

This issue: Lending standards at 49 (neutral), Credit spread at 9 (cold) — at least one is in the neutral range (40⁠–⁠60), so we make no call this issue.

Hot and cold describe position, not good or bad: warm does not mean a fall is coming, and an extreme reading does not mean a quick reversal. We describe history only, with no buy or sell advice.

Where it stands now

Where the two indicators stand this issue

Lending standards: Now 0.0%. Credit spread: Now 0.93 percentage points.

Tests

Does this link hold up?

Common explanationWhen banks tighten lending, borrowing becomes harder and costlier for companiesSource: Federal Reserve Board, “Changes in Bank Lending Standards and the Macroeconomy” (2012).
Tested against our dataAgreement between the positions of Lending standards and Credit spread (3-month lag), measured in the direction of the common explanation: +0.09. Looking at every 5-year period (shifted one year at a time), the two moved in that direction in 3 of 4. In most periods the two moved the way the common explanation says, but their highs and lows do not line up over the whole history, so overall no relationship is visible.Not visible in our data
Periods when it did not holdAcross 4 5-year periods, out of step in 2009⁠–⁠2023.

History

The two lines, overlaid

Data: Federal Reserve Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS), via FRED (Federal Reserve Bank of St. Louis); Federal Reserve Board (Gilchrist–Zakrajšek spread). Positions: our calculation.

Lending standardsCredit spread

Limits

What this card cannot tell you

Moving together does not prove that one causes the other.
Links change over time; periods when this one did not hold are listed in full.
This is the historical record, not a forecast.

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