Graph by Karl Russell, NYT, from Federal Reserve data |
Because borrowing money costs more, smaller banks have chosen to limit the amount of money they borrow from the Federal Reserve and lend more selectively. DePillis writes, "Small banks are at the epicenter of America’s credit crunch for small businesses." Mary Kay Bates, the chief executive of Bank Midwest in Spirit Lake, Iowa, told DePillis, "It’s a trickle-down effect for everyone. . . . We’re not looking at rates coming down any time soon. I really see us taking a close watch and an internal focus, not so much on innovating and getting into new markets but taking care of the bank we have."
For smaller businesses, the increasing costs of credit may mean downsizing. For entrepreneurs, survival becomes the focus. Even farmers are facing some of the fallout. DePillis reports, "Commodity prices have been dropping, helping to bring down overall inflation, but that has depressed farm income. At the same time, high interest rates have made buying new equipment more expensive."
The problem could eventually spread to affordable housing developments and auto manufacturers. "The real problem may arrive in a couple of years, when a new generation of renters begins searching for properties that never got built because of high borrowing costs," DePillis adds. "Car dealers may feel that shift soon. In recent years, dealers made up for low inventory by raising prices. Carmakers have been offering promotional interest deals, but the average interest rate on new four-year auto loans has climbed to 8.3 percent, the highest level since the early 2000s."
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