Lending Standards

Overview

Lending standards serve as an indicator of financial health. The metric used to measure tightening standards is the “Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms” (DRTSCILM).

This indicator reflects what percentage of banks are making their loan approval criteria more stringent.

Key Dynamics

When this percentage increases, it signals a more defensive posture among banks. As financial institutions tighten credit access, they’re essentially expressing concern about mounting economic risks. This restriction on financing can constrain consumer spending, business investment, and ultimately economic growth.

Recession Signal

Tightening lending standards frequently precede recessions as an early warning mechanism. There is no fixed threshold. The share of banks tightening rose above 15% before the 2001 and 2008 recessions. It also rose above 15% in late 1998, from mid 2022 to late 2023 (peaking at 50.8% in mid 2023), and in mid 2024 and mid 2025. No recession followed any of those.

Tracking the Metric

For better visualisation, add the US recessions indicator (displayed as green boxes).