Tighter Lending? Alliance Is Well Positioned

Lending standards are tightening across the banking sector, and particularly among banks with so-so balance sheets.

 

After years of cheap and easy money, this is no surprise. 

 

Banks received a glut of new deposits during the pandemic. Many of them parked that extra cash in government bonds that are very “safe” (although the ongoing debt-ceiling negotiation might call this into question). But bonds also lock in low interest rates.

 

With interest rates up, those older bonds now trade on the open market at a steep discount. If banks can hold their bonds to maturity, they won’t lose money, but this also means they need to be more careful with their remaining cash.

 

Enter higher lending standards. Banks in general, and particularly these more vulnerable regional banks, are now taking much more care to make lower-risk loans. 

 

Banks are taking a deliberate, segmented approach to their tightening. For riskier ventures and borrowers without strong track records, it’s getting a lot harder to take out loans. For great businesses like Alliance, credit is still available.