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Euro-area banks reported a net 9% deterioration in retail-funding access in the third quarter, the strongest level since the survey began in 2011, according to a European Central Bank survey released on Oct. 27.
The net balance, which compares responses reporting deterioration with those reporting easing, rose from 3% in the second quarter. Despite the record reading, the ECB described the deterioration in retail-funding access as moderate.
Loan Terms and Approval Standards
Banks identified higher lending rates as the primary reason corporate loan terms tightened during the period. Funding costs and balance-sheet constraints also contributed to tougher terms. In contrast, risk perceptions and lower risk tolerance were the main drivers behind the tightening in loan-approval standards, where funding constraints had a broadly neutral impact.
A separate borrower survey indicated similar cost pressure. The ECB’s enterprise-financing survey, released on Oct. 26, showed a net 46% of borrowers reporting higher bank-loan interest rates, up from a previous figure of 42%. The response base includes firms that applied for bank loans, credit lines, or bank or credit-card overdrafts. The figure represents the number of firms reporting increases minus those reporting decreases.
Sample Changes and Money Growth
The borrower sample changed substantially, with first-time respondents forming a majority. Additionally, about half of the firms answered for the period from July through September, while the remainder covered April through September. These differing reporting windows complicate comparisons between survey rounds. The ECB issued an explicit warning regarding the sample change, particularly concerning numerical expectations.
These financing constraints coexist with continued growth in money and loans. ECB data released on Oct. 27 showed September annual growth of 3.5% in broad money, 4.2% in adjusted corporate loans, and 3.1% in adjusted household loans. All three figures were unchanged from August. These annual growth measures can remain positive even as new borrowing becomes more difficult or expensive.
A 2023 IMF working paper suggests a potential mechanism linking monetary tightening to crypto assets, finding that US Federal Reserve tightening reduced a common crypto-price factor through investors’ risk taking. Applying this finding to European financing costs is an inference. For Bitcoin, potential pressure could run through the cost of financing and investors’ willingness to take risk. If more expensive credit prompts investors to borrow less or reduce the amount they are willing to risk, demand for Bitcoin could weaken. Wider funding spreads, tighter dollar financing, and actual deleveraging would strengthen the case that regional strain is reaching crypto investors, while stable dollar funding and sustained Bitcoin demand would weaken it.
The next policy checkpoint is the ECB decision scheduled for Oct. 29 at 14:15 CET.
Frequently Asked Questions
What was the net balance for retail-funding access in the third quarter?
Euro-area banks reported a net 9% deterioration in retail-funding access in the third quarter, up from 3% in the second quarter.
When is the next ECB policy decision scheduled?
The next ECB policy decision is scheduled for Oct. 29 at 14:15 CET.
