Bank of Canada, Fed should focus on rising delinquencies, defaults, bankruptcies 'before it's too late'

financialpost.com:

Despite the cumulative 75-basis-point cut by the United States Federal Reserve since September and the 125-basis-point cut by the Bank of Canada since June, the most recent loan officer surveys for both countries showed lending standards actually tightening.

The reason for this is clear in the “hard” bankruptcy data: credit quality has become a concern for banks, with the number of businesses filing for bankruptcy reaching concerning levels. This is one of many reasons why we think the Fed and the Bank of Canada are currently “pushing on a string,” and that more cuts are needed to respond to deteriorating business credit quality.

In the past few weeks, a string of bankruptcies has been headlining the financial news. From health care (CareMax Inc.) to commercial flights (Spirit Airlines Inc.) to tire manufacturers (American Tire Distributors Inc.) to auto financing (Vroom Inc.), the development has been broadly based.

Looking at the bigger picture, over the 12 months to September, the total number of bankruptcy filings in the U.S. reached 22,691, a 73.5 per cent increase from two years ago when the Fed was midway through its hiking cycle. In quarterly terms, U.S. business bankruptcy filings rose 14.5 per cent in the third quarter from a year ago to 5,557, which is nearly double the cycle low of 3,065 seen in the first quarter of 2022.

The last time there was such a drastic increase in bankruptcies was in the middle of the global financial crisis back in 2008.

Likewise, business insolvencies (including both bankruptcies and proposals) in Canada have risen 16 per cent year over year as of the third quarter, and 12-month total filings to September have reached levels not seen since early 2010. So it makes sense to see