Bank lending picked up in 2025, boosting economic growth. In 2022-24, banks indicated that they were reducing credit supply, in part because the U.S. banking agencies announced plans to tighten regulations sharply. With the agencies instead now proposing reforms that will make regulations more transparent, more reflective of risk and less volatile, lending has picked up. A simple model of the economy developed by several Fed economists suggests that the tightening in standards reduced the level of real GDP by nearly 2 percent, while the more recent reform will boost GDP by over ½ percent by the end of 2026.
Background on lending standards and loan growth
As shown in Table 1, bank loans to businesses and households grew 5½ percent in 2025, up from a 3 percent rate on average over the previous two years, which was below the rate of inflation (3.1 percent). The pickup was especially notable for commercial and industrial loans, which are loans to nonfinancial businesses used to support equipment investment, research and development and inventories, among other uses. C&I loans grew 4¼ percent last year having edged down in 2023 and increasing only 1 percent in 2024.
Table 1: Percent Growth in Bank Lending
Source: H.8 Assets and Liabilities of Commercial Banks in the United States
Note: Percent change at break adjusted, seasonally adjusted, annual rate.
The amount of lending is determined by supply and demand for loans. A widely used measure of bank credit supply is the net change in lending standards reported by banks in the Federal Reserve Board’s quarterly Senior Loan Officer Opinion Survey. Exhibit 1 shows the survey results aggregated across loan types. While banks generally tighten credit during recessions, banks also tightened standards significantly in 2022-24, even though the economy was expanding modestly. While lending standards began tightening in the second half of 2022, loan officers were also likely concerned in 2023 by fallout from the bank failures that spring, as well as resulting intense supervisory pressure to reduce risk.
The Senior Loan Officer Opinion Survey asks bankers who have tightened standards on C&I loans why they have done so. Usually banks point to economic developments as the reason why they tightened, but the 2023-24 tightening was different. Many of the banks that tightened pointed to “[i]ncreased concerns about the effects of legislative changes, supervisory actions, or changes in accounting standards” as the reason. Specifically, 27 of the 66 domestic banks responding to the July 2023 survey, a record high by a wide margin, stated that they had tightened standards and had done so in part because of the regulatory outlook. The second highest number (19) was the quarter after, the third highest (18) the quarter before.
In 2023 and 2024, the U.S. banking agencies proposed a material tightening of bank regulations. Most significantly, in July 2023, the agencies proposed the U.S. implementation of the final Basel III capital reforms. Even though the agreed Basel standard was designed to leave capital requirements roughly unchanged, the proposed U.S. implementation would have raised them sharply. Estimates indicate that the proposal would have required banks to raise between 16 and 25 percent more capital or reduce their loans by a similar amount to comply (link). Banks reacted to this proposal in part by lending less.
Furthermore, anecdotally, bank examiners pressured banks to reduce credit risk and increase holding of reserves and Treasuries at the expense of loans (link).
In 2025, by contrast, the banking agencies have been enacting reforms of bank regulations that are designed to increase transparency and reduce uncertainty but not to raise capital requirements. Furthermore, the Federal Reserve amended its holding company examination rating regime to focus on capital and liquidity strength as opposed to governance issues, resulting in an upgrade in the ratings of at least some banks (link).
As can be seen in Exhibit 1, banks reported easing lending standards in aggregate in the first quarter of 2025 and have continued to do so on subsequent surveys.
Modeling the effect of changes in lending standards
To get a sense of how the tightening in lending standards in 2022-24 and the subsequent easing of standards in 2025 have influenced the economy, we replicated the analysis of one of the many academic papers that have investigated the link. In particular, we updated the model in Bassett et al (2012), published in the Journal of Monetary Economics, to include up-to-date data. Details of this model are provided in the Appendix.
To analyze the tightening in lending standards in 2022-24, we used the model to generate a forecast of GDP with two alternative paths: one assuming lending standards were equal to their sample mean in Q3 2022 and stayed there, the other taking the actual path for lending standards, which tightened significantly. The model forecasts indicated that the level of real GDP would have been 1.8 percentage points higher in Q4 2024 if there had been no significant tightening in lending standards over 2022-24.
We then used the model to forecast real GDP, starting in Q1 2025, with two alternative paths: (1) assuming lending standards were constant at their sample mean starting in Q1 2025; and (2) taking the actual path for lending standards. The forecasts indicate that GDP will be 0.6 percentage points higher by the end of 2026 than if there had been no easing in lending standards over 2025.
The forecasts illustrate how much the tight lending conditions over 2022-24, which were in part a reaction to concerns about tighter regulation and examination, reduced GDP. They also show how much the easing of those concerns more recently has supported output.
Our findings are broadly consistent with prior research linking SLOOS results, loan growth, and GDP growth. In our estimates, a one standard deviation shock to loan standards results in a decrease in real GDP by around 0.5 percentage points, 12 quarters after the shock. Lown and Morgan (2006) find the same size effect. Bassett et al (2012) find that real GDP declines by between 0.6 and 0.9 percent after 12 quarters. Broadbent et al. (2026) find a peak effect on real GDP growth of 0.4 percentage points, which translates to a much larger cumulative effect on the level of GDP.
