THIS STORY HAS BEEN FORMATTED FOR EASY PRINTING

Fed: Banks tightening standards for loans

Email|Print|Single Page| Text size + By
Bloomberg News / February 5, 2008

WASHINGTON - The Federal Reserve said it became tougher for US companies and consumers to get loans in the past three months, particularly to buy real estate.

Most lenders anticipate more delinquencies and losses this year, assuming "economic activity progresses in line with consensus forecasts," according to the central bank's quarterly survey of senior loan officers, released yesterday.

About 80 percent of banks raised standards on commercial-property loans, a record since the Fed began seeking information on the subject in 1990. Chairman Ben S. Bernanke and his colleagues had the results when they lowered their benchmark interest rate by half a point last week, on top of the three-quarter point emergency reduction on Jan. 22.

"It's definitely a broader-based tightening than we've seen before," said Edward McKelvey, senior US economist at Goldman Sachs Group Inc. in New York. "The economy is weakening and weakening in a pretty substantial way."

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households," the Federal Open Market Committee said in its Jan. 30 statement.

The survey covered 56 domestic banks and 23 foreign institutions. The 56 banks together have $5.95 trillion in assets, representing about 54 percent of the country's $11.1 trillion total for all domestically chartered, federally insured commercial banks.

About one-third of US banks said they increased their standards on commercial and industrial loans, while two-fifths said they widened spreads of interest rates over their cost of funds. Both responses represented an increase from October.

In commercial real estate, about 45 percent, on net, of both US and foreign institutions said demand for such loans weakened in the past three months. Many banks became stricter because of a "less favorable economic outlook," and a "large fraction" of US banks reported a "reduced tolerance for risk," the Fed said.

For home loans, about 55 percent of US banks toughened terms for prime mortgages, up from 40 percent in October, while 85 percent of respondents made it tougher to get nontraditional loans, up from 60 percent, the survey said.

more stories like this

  • Email
  • Email
  • Print
  • Print
  • Single page
  • Single page
  • Reprints
  • Reprints
  • Share
  • Share
  • Comment
  • Comment
 
  • Share on DiggShare on Digg
  • Tag with Del.icio.us Save this article
  • powered by Del.icio.us
Your Name Your e-mail address (for return address purposes) E-mail address of recipients (separate multiple addresses with commas) Name and both e-mail fields are required.
Message (optional)
Disclaimer: Boston.com does not share this information or keep it permanently, as it is for the sole purpose of sending this one time e-mail.