Money Matters - Simplified

Fed survey claims banks relaxing loan conditions

The quarterly survey of senior loan officers conducted by the Federal Reserve found that the banks continued with the trend of easing out lending standards.

The quarterly survey of senior loan officers conducted by the Federal Reserve found that the banks continued with the trend of easing out lending standards. Some of the respondent even claimed a slight rise in the demand for industrial and commercial loans along with the loans for commercial real estate.

Banks ease loan terms
The survey found that overall demand for loans saw a marginal increase though some categories like the residential real estate continued with a weak demand.

The survey was based on 55 domestic and 22 foreign banks having branches in the U.S. During the survey it was revealed that with regard to consumer loans, the number of banks that lowered their standards was low, as was the case in the previous survey.

Some banks saw a rise in the credit card and auto loans in the last three months but the rise in demand was not widespread. The demand for other consumer loans remained unchanged.

Some banks saw a rise in the credit card and auto loans in the last three months but the rise in demand was not widespread. The demand for other consumer loans remained unchanged.

Some of the banks participating in the survey said they experienced a rise in demand for commercial as well as non traditional, prime residential real estate.

In this regard, the Fed said, “Domestic banks further eased standards on commercial and industrial loans to firms of all sizes over the past three months.”

“For most loan categories, the current level of lending standards was tighter than the middle of its recent historical range,” commented the central bank.

Banks feel standards are still strict for most loan categories
A large number of banks participating in the survey said that they felt the standards are still strict for most of the loan categories, though the level of strictness was different among the various categories.

A significant number of banks reported that the terms for loans for the small firms were not eased out in comparison to the others. Only 10 percent of the banks reported easing out the terms for small businesses, though around 20 percent domestic banks participating in the survey confirmed that the terms for the loans have been eased for the commercial and industrial loans for the large and middle level firms.

The weakness in demand continued despite the record low interest rates and the continued easing of terms for granting loans.

The weak demand for loans by consumers and companies restrict the economic growth of the country. The Federal Reserve conducts this survey in every quarter and the present survey was conducted before the S&P’s downgraded the credit rating of the USA.