Survey: Banks Tightened Credit in Second Quarter
Domestic banks tightened standards on all major types of loans to businesses and households during the second quarter, although the net percentages of banks that tightened declined compared with a similar survey in April, according to the Federal Reserve's July 2009 Senior Loan Officer Opinion Survey on Bank Lending Practices.
Most lenders said they restricted standards on business loans mainly because of reduced risk tolerance and "a more uncertain economic outlook."
Weakening continued across the loan spectrum
The results in the July quarterly survey are based on responses from 55 domestic banks and 23 U.S. branches and agencies of foreign banks.
In response to a special question in the July survey, domestic banks cited decreased loan demand and deteriorating credit quality as the primary reasons for declines in C&I lending this year. Responding to another special question, most banks reported that they expect lending standards in all categories to remain tighter—compared with their average level for the past 10 years—until the second half of 2010 at minimum.
Uncertain outlook tightens standards
After holding nearly flat in the April survey, the net percentage of domestic banks that tightened standards on prime residential real estate loans fell to roughly 20 percent. This measure peaked at a level of about 75 percent a year ago. For the second consecutive survey, domestic banks reported increased demand for prime residential mortgages.
August 31, 2009