Loan Applications Spike After Fed Rate Cut

Loan applications spiked in the immediate aftermath of last week’s interest rate cut from the Federal Reserve, according to fintech firm Figure Technologies.

The company – which provides blockchain technology to financial services providers – said loan applications through its systems were up by 300% since March 4. The average size of loans was $50,000 per household, Figure said.

The total value of loans transacted using Figure’s blockchain-based platform has now exceeded $1 billion, the company estimated. It launched in October 2018 and processes consumer loans for “a growing number of the world’s premiere lenders”, it said.

The surge in applications followed the Federal Reserve’s decision to lower its base interest rate by 50 basis points on March 4 following an emergency meeting, in an effort to ease market conditions amid widespread turmoil as the COVID-19 coronavirus spread. The Bank of Canada took similar action last week.

In London this morning, the Bank of England (BoE) also cut its base interest rate by 50 basis points to 0.25% in response to the virus’s impact, following an emergency meeting of its rate-setting Monetary Policy Committee.

In a statement the bank said the move was aimed at helping “UK businesses and households manage through an economic shock that could prove sharp and large, but should be temporary”.

The BoE also introduced a funding scheme for small and medium-sized companies to help offset the financial impact of COVID-19.

“Although the magnitude of the economic shock from COVID-19 is highly uncertain, activity is likely to weaken materially in the UK over the coming months,” the bank said. “Temporary, but significant, disruptions to supply chains and weaker activity could challenge cash flows and increase demand for short-term credit from households and for working capital from companies.

“Such issues are likely to be most acute for smaller businesses. This economic shock will affect both demand and supply in the economy.”

Marvin Loh, global macro strategist at State Street Global Markets, said financial markets were pricing a further rate cut by the Federal Reserve at its scheduled meeting next week, while the European Central Bank was also expected to act despite its core interest rate being negative.

Other developed market central banks “may be forced to respond”, Loh said.

He added: “Rate cuts may also not be enough, with broad expectations that the central banks will re-introduce quantitative easing to address coronavirus-inspired slowing growth and market volatility.”

A dispute between Saudi Arabia and Russia over oil production and prices has also rattled markets, Loh said, presenting central banks with “multiple black swan events” at a time when they have “limited ammunition” to influence markets and calm investors.