Fed Says Banks Tightening Terms for Business Loans
Banks have grown so worried about a possible recession that more have toughened terms recently for business loans than at any time since 1990, a Federal Reserve survey said Friday.
Analysts said the survey would spur the Fed, the nation’s central bank, to watch credit more closely, but noted there was little chance lending would dry up as it did in the early 1990s.
“I don’t think that we are seeing what I would call a general credit crunch,” said economist Sung Won Sohn at Wells Fargo & Co.
Indeed, a Times story on Friday noted that total U.S. bank credit outstanding has surged in recent months, and was rising even before the Fed began trimming interest rates on Sept. 29.
Banks are still lending but they “are being cautious, recognizing that economic conditions are likely to be less favorable in the future,” Sohn said.
The survey of 55 U.S. and foreign-owned banks lending in the United States found a growing number had stiffened their standards and terms for loans during the last three months for fear of not getting repaid.
“The survey results suggest a broad tightening of business lending practices,” the Fed survey of senior loan officers said, adding that about one-third of the banks had made it harder to qualify for loans, with most citing “a less favorable or more uncertain” economic outlook.
It was the biggest percentage of banks tightening loan standards since 1990, the central bank said, harking back to the credit crunch during the 1990-91 recession.
Companies had trouble borrowing on almost any terms in the early ‘90s, slowing recovery from the last recession by limited investment in new plants and equipment.
Even though loan terms have been tightened recently, the Fed survey found rising demand for commercial and industrial loans from bigger companies, partly because they were having trouble raising funds in capital markets.
In contrast to banks’ wariness about business lending, the survey found scant evidence of changes in lending to consumers.
