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Pullback in Bank Lending Is Worrying, Guggenheim’s Schwartz Says

Published 03/05/2023, 20:46
© Reuters

(Bloomberg) -- The recent wave of “idiosyncratic” regional bank failures is stabilizing, but a pullback in bank lending could be a cause for concern, Guggenheim Capital’s Chairman Alan Schwartz said in an interview with Bloomberg Television on Wednesday. 

“What I’d worry about a little is, we do not yet know how much pressure there will be in bank lending, how much banks will have to pull back because of the duration risk they took,” Schwartz said on the sidelines of the Milken Institute Global Conference in Beverly Hills. “At the same time, that maybe monetary policy is still tightening while bank credit is tightening a lot.” 

Lenders that took on duration risk are having to pull back, according to Schwartz. At the same time, many creditors are building their businesses on floating rate debt, and as their debt costs go up, their ability to pay could go down, too. 

“What we don’t know is how much tightening there’s going to be,” Schwartz said. 

Schwartz is the latest to comment on the potential pullback in lending. Other investors, like Canyon Partners’ Josh Friedman, have warned of “carnage” in certain parts of the commercial real estate market amid higher interest rates. Turmoil at regional banks could limit access to funding for commercial real estate firms, Friedman said, adding that private lenders could step in as the banks pull back. 

Schwartz also pointed out that the current banking crisis is “very, very different” from the crisis of 2008 and 2009, when over-investment in bad credits and the opaque nature of those assets contributed to the freeze in the banking system. 

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