Lending at US banks gets more restrictive
Survey highlights credit concerns
WASHINGTON - The Federal Reserve said the share of banks making it tougher for companies and consumers to borrow approached a record after the subprime-mortgage collapse made them more reluctant to lend.
The quarterly Senior Loan Officers' Survey, published yesterday, underscores the Fed's concern that $318 billion of credit losses and write-downs among financial firms is causing a credit crunch. The survey, conducted last month, also indicates that the Fed's interest rate cuts and loans to banks have failed so far to defuse the threat to the six-year economic expansion.
"It's going to be a headwind to growth," said Keith Hembre, chief economist at Minneapolis-based FAF Advisors Inc. "The change from being readily available and cheap to less available and more expensive is going to deter a lot of borrowing."
Most banks increased loan rates over their cost of funds for commercial and industrial borrowing, according to the central bank's quarterly survey. The proportion of banks raising such rates rose to a net of 70 percent compared with 45 percent in a January report. The survey data were available to central bank policy makers last week when they cut interest rates by a quarter point.
The report covered 56 domestic banks and 21 foreign institutions. The US banks represent about 64 percent of the total for domestically chartered, federally insured commercial banks.
Policy makers last week signaled they are ready to hold off on further rate cuts as they assess the impact of the 3.25 percentage points of reductions since September. They dropped a reference to "downside" risks to growth from their previous statement.
At the same time, officials acknowledged in their April 30 statement that "tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."
In commercial real estate, a net 80 percent of US banks said they tightened lending standards, about the same as the January survey. The results of both surveys are about the highest since the central bank began seeking information on the subject in 1990. A net 35 percent of US banks reported slower demand, less than January's 47 percent.
For home loans, the proportion of US banks making it tougher for prime borrowers, those with the best credit, rose to 60 percent from 53 percent. About one-fourth of banks reported slower borrowing for prime mortgages and 30 percent said nontraditional loans were weaker, both "significantly smaller" numbers than in January.
