From Winemakers to Builders, Borrowers Brace for Fallout From Bank Turmoil

Any slowdown will intensify conditions that were already getting tougher for borrowers. The Fed has been raising interest rates for the past year, making money more expensive to borrow, and labor market data released on Friday offered the latest evidence that demand is beginning to slow enough to cool the economy, weighing on hiring and wage gains.

Still, many Fed officials had come into March anticipating that they might lift rates a few more times in 2023 until inflation comes under control. Now, the banking fallout may restrain the economy enough to make further moves less urgent, or even unnecessary.

“It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond,” Jerome H. Powell, the Fed chair, said at a news conference last month.

Aftershocks are already surfacing. Commercial real estate borrowers rely heavily on midsize regional banks, which have been particularly hard-hit by the turbulence. Those banks were already become pickier as interest rate increases bit, said Stephen Buschbom, research director at Trepp, a commercial real estate research firm. Anecdotally, Silicon Valley Bank’s blowup is making it worse.

“It’s not easy to get a loan commitment is the bottom line,” Mr. Buschbom said.

Tougher credit could bedevil a sector that was already suffering: Office real estate has struggled in the pandemic as many city workers have eschewed their desks. Mr. Buschbom says he thinks many borrowers will struggle to renew their loans, forcing some into what’s known as special servicing, where they pay interest but not principal. And as distress trickles through the industry, it could worsen the pain for midsize banks.

Article source: https://www.nytimes.com/2023/04/10/business/economy/bank-economy-credit-crunch.html