Fed Says Banks Still Tightening Loan Standards : Economy: The survey suggests that efforts to encourage lending are not working.

The latest survey of bank lending by the Federal Reserve shows that banks further squeezed business lending over the last three months despite efforts by officials to crack the credit crunch.

“The results suggest a further overall tightening of business lending standards and terms in the last three months,” the Federal Reserve said in its latest bank survey released Friday.

Foreign banks operating in the United States appear to be more wary of lending than U.S. banks, the survey said. Banks also have tightened standards on home mortgage and consumer lending.

Administration and Federal Reserve officials are worried that despite efforts by the central bank to push interest rates lower, banks have kept a tight lid on lending.

The Fed has been pushing rates lower since July, hoping to break the credit crunch and lift the economy out of recession.

Treasury officials have been working with banking regulators on a package of accounting and regulatory changes to help banks cope with problem loans so they will be encouraged to start lending again.

The Federal Reserve survey said the number of domestic banks that say they tightened lending standards for businesses in the last three months was significant. But fewer domestic banks reported tighter standards this time than in its last survey in October, the Fed said.

Between October and January, about one-third of domestic banks said they stiffened loan standards for large, medium and small companies. In the last survey, about half the banks had tightened terms.

“At U.S. branches and agencies of foreign banks, by contrast, the pace of tightening appears to have accelerated since October,” the Fed said.

“Almost 90% of U.S. branches and agencies of foreign banks reported tightening credit standards in the last three months, up from about 70% in the October survey,” the Fed said.

The falling economy and specific industry problems were generally cited as reasons for the tightening.

Despite the survey, some signs are emerging that the credit crunch is beginning to ease, said Cynthia Latta, senior financial economist for DRI/McGraw Hill Inc.

“It is not as serious a picture as it may have been painted,” Latta said. Banks moved quickly to lower their prime lending rates following the discount rate cut by the Fed last Friday. Recent increases in the money supply show that banks may be willing to lend again, she said.

Banks surveyed by the Fed said most of the commercial and industrial companies they turned away or discouraged managed to get credit at another bank.

“A number of firms, however, responded to the tightening by canceling or postponing planned borrowing, presumably reducing their spending plans as well,” the survey said.

But more than half the domestic banks surveyed said they raised the cost and cut the size of available credit lines, the Fed said.

About half of the domestic banks tightened standards for construction and land development loans between October and January.