This Week in Credit Risk: The Fed Holds with Three Dissents, Sentiment Slips, and New Lending Guidance

The Fed Holds, but Three Members Wanted a Hike

The FOMC held rates at 3.50% to 3.75% for the fifth consecutive meeting, but three members dissented in favor of a quarter-point hike. The outlook has shifted too: the June dot plot moved from a projected cut to an implied hike, with consumer prices still up 3.5% over the year in June (down from 4.2% in May) and Brent crude up roughly 20% since the start of July.

For community bank credit teams, that reinforces what many already know: underwrite for higher for longer, not for rate relief. A deal that only works if rates come down is not a deal that works.

Community Bank Sentiment Is Positive but Slipping

The CSBS Community Bank Sentiment Index for the second quarter came in at 129, down from 131 last quarter and four points below the record high. Profitability expectations remain strong, but uncertainty is creeping in.

It is a good reminder to stay disciplined on underwriting while the outlook is still favorable. Standards that loosen in good times are the ones that get tested later.

New Interagency Guidance on Assessing Repayment Capacity

On July 13 the OCC, FDIC and NCUA issued interagency guidance on lending to individuals not legally authorized to work in the United States. It reminds institutions to apply sound credit risk management when evaluating those borrowers’ repayment capacity, income stability and financial sustainability.

The agencies describe this lending as carrying elevated credit risk, and they also flag documentation, concentration and consumer compliance risk. The narrow topic carries a broader lesson for any credit team: verify income sources, and document how you judged their stability.

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