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Bank Lending to Tighten Ahead? ETF Areas Under Pressure
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In an interview with CNN's "Fareed Zakaria GPS," U.S. Treasury Secretary Janet Yellen stated that recent bank failures may cause banks to become more cautious and tighten lending standards, potentially eliminating the need for further interest rate hikes by the Federal Reserve, as quoted on CNBC.
Yellen noted that policies implemented to address the systemic risk posed by the failures of Silicon Valley Bank and Signature Bank have helped stabilize deposit outflows. She acknowledged that there has already been some tightening of lending standards in the banking system, and further restrictions on credit in the economy could serve as an alternative to Fed interest rate hikes as that would cut consumers’ ability to spend.
However, Yellen added that she has not yet observed any significant changes that would alter her economic outlook, which remains positive for moderate growth, a strong labor market, and decreasing inflation.
A growing sense of caution among banks regarding their lending practices has the potential to negatively impact several sectors, including small and medium-sized enterprises, real estate, infrastructure, and manufacturing. As banks become more cautious, they may tighten lending standards and reduce the amount of credit available to businesses in these sectors.
Against this backdrop, below, we highlight the above-mentioned sectors and their ETFs in detail.
Small and medium-sized enterprises (SMEs) – iShares Russell 2000 ETF (IWM - Free Report)
Small-cap companies in the United States often rely on bank loans as a source of funding. Banks typically offer a range of loan products, including lines of credit, term loans, and SBA (Small Business Administration) loans, which can help small businesses access the capital they need to grow and expand. This may put IWM in trouble.
Real estate – Vanguard Real Estate ETF (VNQ - Free Report)
The real estate sector is another industry that relies heavily on bank lending. Developers need financing to purchase land, build properties, and fund renovations. Homebuyers also require mortgages, which are usually provided by banks, to purchase homes. Any tightening in bank lending may put real estate companies in trouble.
Infrastructure – iShares U.S. Infrastructure ETF (IFRA - Free Report)
Infrastructure projects, such as building highways, bridges, and airports, require significant amounts of capital. Banks are often the primary source of financing for these projects, either by providing loans directly or underwriting bonds.
Manufacturing companies often require significant amounts of capital to purchase equipment, build factories, and invest in research and development. Banks provide financing for these needs, as well as for inventory and accounts receivable financing.
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Bank Lending to Tighten Ahead? ETF Areas Under Pressure
In an interview with CNN's "Fareed Zakaria GPS," U.S. Treasury Secretary Janet Yellen stated that recent bank failures may cause banks to become more cautious and tighten lending standards, potentially eliminating the need for further interest rate hikes by the Federal Reserve, as quoted on CNBC.
Yellen noted that policies implemented to address the systemic risk posed by the failures of Silicon Valley Bank and Signature Bank have helped stabilize deposit outflows. She acknowledged that there has already been some tightening of lending standards in the banking system, and further restrictions on credit in the economy could serve as an alternative to Fed interest rate hikes as that would cut consumers’ ability to spend.
However, Yellen added that she has not yet observed any significant changes that would alter her economic outlook, which remains positive for moderate growth, a strong labor market, and decreasing inflation.
A growing sense of caution among banks regarding their lending practices has the potential to negatively impact several sectors, including small and medium-sized enterprises, real estate, infrastructure, and manufacturing. As banks become more cautious, they may tighten lending standards and reduce the amount of credit available to businesses in these sectors.
Against this backdrop, below, we highlight the above-mentioned sectors and their ETFs in detail.
Small and medium-sized enterprises (SMEs) – iShares Russell 2000 ETF (IWM - Free Report)
Small-cap companies in the United States often rely on bank loans as a source of funding. Banks typically offer a range of loan products, including lines of credit, term loans, and SBA (Small Business Administration) loans, which can help small businesses access the capital they need to grow and expand. This may put IWM in trouble.
Real estate – Vanguard Real Estate ETF (VNQ - Free Report)
The real estate sector is another industry that relies heavily on bank lending. Developers need financing to purchase land, build properties, and fund renovations. Homebuyers also require mortgages, which are usually provided by banks, to purchase homes. Any tightening in bank lending may put real estate companies in trouble.
Infrastructure – iShares U.S. Infrastructure ETF (IFRA - Free Report)
Infrastructure projects, such as building highways, bridges, and airports, require significant amounts of capital. Banks are often the primary source of financing for these projects, either by providing loans directly or underwriting bonds.
Manufacturing – Industrial Select Sector SPDR ETF (XLI - Free Report)
Manufacturing companies often require significant amounts of capital to purchase equipment, build factories, and invest in research and development. Banks provide financing for these needs, as well as for inventory and accounts receivable financing.