Fed survey finds slight bank easing for business loans

By Martin Crutsinger

AP Economics Writer

WASHINGTON (AP) -- The Federal Reserve said Monday that banks loosened their lending standards modestly for certain business loans over the past three months but kept tight standards on consumer loans.

The Fed said that 12 percent of the banks responding to its latest survey had somewhat eased their standards on commercial and industrial loans.

However, the survey found little change in the tight lending standards imposed on consumer loans since the housing market collapsed.

For the business loans, banks said the slight easing in standards reflected a less uncertain economic outlook and increased competition from other banks to make business loans.

The Fed's survey covered 57 domestic banks. That included all of the nation's largest institutions, which represent the bulk of lending activity in the country.

Forty-nine of the banks said their commercial and industrial lending policies were basically unchanged. One bank said it had tightened standards slightly. Seven banks, or 12 percent of those responding, said they had eased lending standards somewhat.

Many small businesses have complained that the government's $700 billion financial bailout failed to protect them from being cut off from their normal lines of bank credit. The bailout program was supposed to provide sufficient capital to banks, allowing them to continue lending as the country fell into recession.

However, banks, faced with mounting loan losses, significantly tightened their standards. That has depressed consumer and business borrowing, dragging on the overall economy.

The new Fed survey found that 51 of 54 banks kept their loan standards for traditional residential home mortgages basically unchanged over the past three months. The survey found that two banks had tightened standards somewhat and 1 had eased them.

The survey found 5 of 55 banks had tightened standards somewhat on revolving home equity lines of credit. Three had eased standards and 47 have left loan standards basically unchanged from the previous three months.

Banks sharply tightened their lending standards for business and consumer loans during the height of the financial crisis in 2008. Despite some loosening in loan standards over the past year, it is still much harder to get a loan than before the crisis.

Published: Wed, Feb 2, 2011


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