Lending standards are a barometer for financial health. The tightening of lending standards is measured by the Net Percentage of Domestic Banks Tightening Standards for Commercial and Industrial Loans to Large and Middle-Market Firms (DRTSCILM).

This metric reflects the percentage of banks that are strengthening their loan approval criteria.

An increase in this percentage signifies a more cautious stance from banks,

When banks tighten lending, it suggests they perceive higher risk in the economic environment.

This tightening can reduce access to finance, impacting consumer spending, business investment, and by extension, economic growth.

Recession Signal

Tightening lending standards can be an early warning sign of economic trouble.

We don’t have an exact figure that spells impending doom, however, historically an upward trend in this metric has preceded recessions. Anytime in recent history the % has gone over 15%, we have had a recession.

Track this yourself

You can track the DRTSCILM (rediculous, we know) easily on TradingView:

https://www.tradingview.com/chart/v7ZG3yMA/?symbol=FRED%3ADRTSCILM

Add the US recessions indicator to get the green boxes and draw a horizontal lone of box around the 15% area.