Loan Standards Tightening at a Slower Rate

Banks continue to tighten standards for consumer loans but at a slower pace, suggesting that many believe they have achieved sufficient protection against defaults, a Federal Reserve survey showed. The survey findings follow recent reports of troublesome personal bankruptcies and credit-card delinquencies. “The August survey was the seventh in a row that found a tightening in standards for loans to households,” the survey of senior loan officers at 54 domestic and 21 foreign banks found. “However, the net percentages tightening were smaller in August, suggesting that more banks may now believe they have adjusted their lending stance appropriately to the deterioration in the performance of these loans that occurred over the past two years.” The quarterly survey found less than 25% of the banks had tightened standards for credit-card applications and less than 10% had more stringent rules for other consumer loans. Only 25% had lower borrowing limits on credit cards. The loan officers reported little change in standards for approving mortgage applications for home purchases.