Banks Tighten Up on Loans to Businesses
Banks were much more cautious about lending to businesses in the last three months, citing some uncertainties about the economy’s outlook, the Federal Reserve said Friday.
At the same time, consumer demand for home mortgage loans continued to decrease, reflecting higher interest rates, according to the Fed survey of loan officers from 57 large domestic banks and 21 U.S. branches of foreign banks.
Regarding business lending, “the responses indicate that banks became significantly more cautious lenders over the past three months,” the survey said.
The results “pointed to an intensification of the recent tendency toward firmer business lending practices,” the survey said.
Almost a quarter of domestic banks said they tightened terms and conditions of commercial and industrial loans, the largest percentage since the Fed’s November 1998 survey.
“A less favorable or more uncertain economic outlook and a reduced tolerance for risk were most often reported as reasons for the tightening,” the survey said.
The Fed boosted interest rates Tuesday for the sixth time since last June to slow the economy and keep inflation in check.
The latest rate increase was by a more aggressive half-point, while the five others were smaller quarter-point increases. Additional rate increases are expected.
The Fed’s rate increases are designed to raise borrowing costs for businesses and consumers, thereby trying to cool demand for big-ticket items such as cars and houses.
The survey said 50% of banks reported “moderately weaker” demand for home mortgages.
“Banks have now reported weaker demand for home mortgage loans for four consecutive quarters,” the survey said.
Mortgage rates have been on the upswing this year, with the average interest rate on a 30-year mortgage hitting 8.64% this week, the highest level since early 1995.
For the most part, terms and conditions of residential mortgage loans were unchanged from three months ago.
Some banks also reported a modest decrease in demand for consumer loans.
