A month after the collapse of Silicon Valley Bank, the U.S. appears to have avoided the worst-case scenario — a rapidly escalating financial crisis — and markets have rebounded. And yet, just below the surface, signs are mounting that credit is drying up in pockets of the economy at a worrisome rate, according to a Bloomberg News analysis. Small businesses say that it hasn’t been this difficult to borrow in a decade; the amount of corporate debt trading at distressed levels has surged about 300% over the past year, effectively locking a growing swath of businesses out of financial markets; bond and loan defaults have ticked up; and the Federal Reserve says banks have tightened lending standards. Corporate bankruptcies are on the rise, too, particularly in the construction and retail industries. Some of this is, of course, by design — the result of Fed Chair Jerome Powell’s rapid shift away from the easy-money policies of the pandemic. And none of the signals is cause for alarm on its own. But, taken together, they underscore the lingering concern that the Fed may have gone too far, too fast in pushing up interest rates to squelch inflation — and that by unleashing the forces that sunk SVB, policymakers could push banks to dial back lending so sharply the economy dives into a deep recession. “We were already debating a hard landing before SVB happened,” said Torsten Slok, chief economist at Apollo Global Management. “If credit conditions continue to tighten because banks need time to be in a position where they can give loans and operate, that increases risk of a harder landing — even more so than what we thought before.” Treasury Secretary Janet Yellen recently said that she hasn’t seen evidence yet that lending is contracting and that the possibility that it will hasn’t significantly altered her economic outlook. That view was supported on April 14, when the Fed said bank lending rose for the first time in three weeks. But other indicators show less reason for optimism. Take small businesses, which are facing more difficulty raising money since worries about regional banks flared up last month. A net 9% of owners who borrow frequently said in March that financing was harder to get than it was three months earlier, the most since December 2012, according to a survey by the National Federation of Independent Business.
