Bank Lending More Cautious, Fed Says
Banks are showing more restraint in issuing credit, with a large majority tightening standards for commercial real estate loans, according to a Federal Reserve Board survey released Monday.
“As in past surveys, the pullback was least evident in consumer and home mortgage lending and was clearest in commercial real estate lending . . .,” the central bank said.
It added that “agencies and branches of foreign banks (are) reporting more tightening than domestic banks.”
Results of the sampling of senior loan officers at 60 large banks in October came as some Administration officials are expressing concern that a shortage of credit is deepening the economic downturn.
Chief of Staff John H. Sununu, Commerce Secretary Robert A. Mosbacher and reportedly Budget Director Richard G. Darman contend that bank examiners should ease up. Treasury Secretary Nicholas F. Brady and Fed Chairman Alan Greenspan want close scrutiny of lending.
Financial institutions and some borrowers have complained for months that bank and S&L; examiners have overreacted to the thrift crisis by discouraging even sound loans. Regulators say they are only urging prudence in response to a weaker economy.
“There perhaps have been some regulators that have been overzealous at times,” said Michael J. Boskin, Bush’s chief economic adviser. “We need to make sure they are prudent and do enforce the safety requirements . . . but I think it is likely the case that some, seeing the S&L; situation, have perhaps inadvertently overreacted.”
He added that some banks have been forced to make fewer loans in response to stricter capital standards taking effect Jan. 1.
Banks that cannot raise additional capital have little choice but to restrict new loans.
Nearly two-thirds of the respondents in the Fed survey reported tightening lending standards for commercial real estate loans. Almost half said they had tightened lending standards for non-real estate commercial and industrial loans to large corporations.
Most cited “a deterioration in the economic outlook” and “problems specific to individual industries” for the greater restraint. About a fifth said their capital position is restricting new lending, while two-thirds said it has had no effect.
