Banks Finally Start to Ease Lending Standards, Fed Reports

Federal ReserveAlthough modestly, big banks are starting to ease lending standards, particularly in the vital sector of commercial and industrial loans to small businesses, according to a new report by the Federal Reserve.
The Fed’s July survey of senior loan officers that examines lending practices for the previous three months found the first “easing of standards on commercial and industrial loans to small firms since late 2006.”
Consumers are also benefitting from the beginning of the credit market thaw that peaked after the financial crisis of late 2008 and the accompanying recession.
Banks reported “an increased willingness” to make consumer installment loans for the third consecutive quarter. A “small net fraction” of banks reported having eased standards on both credit card and other consumer loans.
Loan officers from 57 domestic banks and 23 U.S. branches of foreign banks were interviewed for the study.
Most of the easing in lending was by larger banks, those with assets greater than $20 billion. Most banks reported that demand for business and consumer loans was “about unchanged.”
“Domestic survey respondents reported having eased standards and most terms on (commercial and industrial) loans to firms of all sizes, a move that continues a modest unwinding of the widespread tightening that occurred over the past few years,” the Fed reported.
The Central Bank also emphasized an upswing in consumer loans.
“On net, large domestic banks reported having easing standards and terms on almost all of the different categories of loans to households,” the Fed reported.
Despite historically low mortgage rates, residential real estate lending remains more restrained.
“A few large banks” reported having eased standards on prime mortgage loans, “while a modest net fraction of the remaining banks” tightened lending policies.
Read the Fed’s full report.

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