As the banking industry reels from some of the largest bank failures in history, many banks — and in particular regional banks — have quickly tightened their lending standards for fear of making loans that may one day sour.
This means that many quality construction firms with good credit histories are being denied loans that they would have received just a year ago.
The reason for this change in behavior by the banks has little to do with the borrower and much more to do with decision made by banking risk managers in recent years. In short, many banks since the Great Recession have been strongly encouraged by banking regulators to take deposits, for which they have been paying almost nothing, and use them to make “safe” purchases of low-interest home mortgages and treasury bonds.
This worked for the last decade in part banks could pay virtually zero interest on customer deposits while offering low rate mortgages, or buy multi-year treasury bonds and bills at 3-5% and profit off the difference.
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