Euro-area banks report record decline in retail-funding access

Euro-area banks reported the largest decline in retail-funding access since 2011, according to a European Central Bank survey released on Oct. 27, ahead of the central bank's policy decision on Oct. 29. The net balance indicating worse access rose to 9% in Q3 from 3% in Q2. The ECB characterized the decline as moderate, comparing responses of deterioration to those of easing. Higher lending rates were cited as the primary reason for tightened corporate loan terms, with funding costs and balance-sheet constraints also contributing. Risk perceptions and lower risk tolerance influenced stricter loan-approval standards, while funding constraints had a neutral impact. A separate borrower survey indicated cost pressures, with a net 46% reporting higher bank-loan interest rates, up from 42%. The borrower sample changed significantly, with first-time respondents making up a majority. About half of the firms reported data for July through September, complicating comparisons. ECB data showed 3.5% annual growth in broad money, 4.2% in adjusted corporate loans, and 3.1% in adjusted household loans in September, unchanged from August. A 2023 IMF paper suggested that tightening by the US Federal Reserve reduced a common crypto-price factor through investor risk-taking, which could apply to European financing costs. Increased credit costs may weaken Bitcoin demand as investors borrow less or take on less risk. The next ECB policy decision is scheduled for Oct. 29 at 14:15 CET.