Tuesday, November 10, 2009

Fewer Banks Tightened Lending Standards Last Quarter, Federal Reserve Says

From the Los Angeles Times:

Fewer U.S. banks tightened lending standards for companies and consumers in the third quarter as the economy grew for the first time in more than a year, a Federal Reserve survey showed.

Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the Fed also said Monday in its quarterly Senior Loan Officer survey. For prime residential mortgages, a larger number of banks reported stronger demand, the central bank said.

The report helps explain why Fed policymakers last week said "tight credit" remains a drag on the economy and pledged to keep their benchmark interest rate near zero for an "extended period." JPMorgan Chase & Co. is among the banks that have reduced lending in response to stricter underwriting standards for consumer loans and lower demand from companies.

"It will be helpful if the banks were more prepared to lend, because there are creditworthy borrowers that are having difficulty getting credit," said Brian Bethune, chief financial economist at IHS Global Insight.

The survey of loan officers at 57 U.S. banks and 23 U.S. branches of foreign banks was conducted from about Oct. 6 to Oct. 20, the central bank said. The report doesn't identify respondents.

Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to a separate statistical release from the Fed.