Euro-area banks report worst retail-funding access deterioration since 2011

Euro-area banks reported the largest deterioration in access to retail funding since 2011 in the European Central Bank's bank lending survey, released October 27. The survey's net balance for worsening access reached 9% in the third quarter, compared with 3% in the second quarter. The ECB characterized the deterioration as moderate. The net balance subtracts responses indicating easier access from responses indicating worse access.

Banks identified higher lending rates as the leading cause of tighter corporate loan terms. Funding costs and constraints on bank balance sheets also contributed to stricter terms. Banks attributed tighter loan-approval standards mainly to risk perceptions and reduced tolerance for risk. However, funding constraints had a broadly neutral effect on loan-approval standards.

The ECB's enterprise-financing survey, released October 26, showed a net 46% of firms reporting higher interest rates on bank loans, against 42% previously. The response base consists of firms that sought bank loans, credit lines, or overdrafts through banks or credit cards. The net figure subtracts firms reporting rate decreases from firms reporting increases.

The borrower sample changed substantially, and first-time participants accounted for a majority of respondents. About half of the firms provided answers covering July through September. The remaining firms answered for April through September. The different reporting periods make comparisons more difficult. The ECB's explicit caution about the sample change applies particularly to numerical expectations.

The financing pressures accompany continued growth in money and lending. ECB data released October 27 put September's annual broad-money growth at 3.5%, unchanged from August. Adjusted corporate loans grew 4.2% annually in September, matching August's rate. Adjusted household loans grew 3.1% annually in September, also unchanged from August. Positive annual growth can coexist with new borrowing becoming more difficult or costly.

A 2023 IMF working paper found that US Federal Reserve tightening lowered a common crypto-price factor through changes in investor risk-taking. Extending that finding to financing costs in Europe is an inference. Bitcoin demand could weaken if more expensive credit causes investors to borrow less or reduce the amounts investors are willing to risk.

Wider funding spreads, tighter dollar financing and actual deleveraging would provide stronger evidence that regional financing pressures are reaching crypto investors. However, stable dollar funding and continued Bitcoin demand would weaken that interpretation. The ECB's next policy decision is scheduled for October 29 at 14:15 CET.