Fed Says Banks Continue To Tighten Lending Standards
by ilene - August 17th, 2009 7:00 pm
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Fed Says Banks Continue To Tighten Lending Standards
Courtesy of Tom Lindmark of BUT THEN WHAT
Banks aren’t loosening their purse strings at all. In fact, it looks like they’ve decided to put their pocket books away for the foreseeable future.
The Fed’s quarterly report on bank lending standards was released today and it confirms what just about everyone knows, the banks are getting stingier. Here are some details from MarketWatch:
Banks were still clamping down on lending to businesses and consumers over the past three months, and they said they planned to keep their credit standards tight for at least a year, the Federal Reserve reported Monday.
In its quarterly survey of banks’ senior loan officers, the Fed said lending standards got even tighter for almost every type of loan, from prime residential mortgages to commercial and industrial loans. The survey covered May, June and July.
Banks have been tightening their standards for various types of loans for more than two years. For residential mortgages, banks have tightened their standards for 11 straight quarters by increasing requirements for down payments, interest-rate spreads, or credit scores.
In the most recent survey, no banks reported easing their terms for residential real estate loans, commercial real estate loans, or consumer credit cards. Less than 4% of banks said they had eased terms on commercial and industrial loans and for home-equity loans.
Given that the FDIC is going to need some more capital to shore up its insurance fund that has been depleted by bank failures, I suppose it’s worth asking whether we truly want banks to be pumping money out the front door. It seems that tightening is in order at this particular time and perhaps the banks’ response tells us something about the economy that reams of government statistics fail to reveal.
Banks, particularly smaller banks, tend to have a fairly good sense of the condition of the local economy in which they operate. You can learn a lot from lunch or golf with the local plumbing and heating contractor or a beer after work with one of your retail clients. Just maybe, these banks are hearing and seeing things that tell them lending into the current environment isn’t the wisest business plan at this moment.
Another part of the study also…