Bloomberg News

Fed Says Banks Ease Standards on Business, Consumer Loans

August 06, 2012

Fed Says Banks Easing Standards on Business, Consumer Loans

Chevy Silverado pickup trucks sit on display at a General Motors Co. dealership in Peoria. Photographer: Daniel Acker/Bloomberg

U.S. banks are relaxing their terms on credit cards and lending for autos and commercial real estate, according to a Federal Reserve survey.

“Domestic banks, on balance, continued to report having eased their lending standards across most loan types over the past three months,” the Fed said today in Washington in its quarterly survey of senior loan officers.

While lending standards are tightening at branches of foreign banks, “domestic banks reported that their business had increased due to decreased competition from European banks and that they remain willing to accommodate additional such business,” the Fed said.

Banks in the U.S. are lending the most since the recession ended in June 2009, supporting an economy burdened by 8.3 percent unemployment. Fed policy makers including Chairman Ben S. Bernanke weighed the results of the survey at their July 31- Aug. 1 meeting at which they said they “will provide additional accommodation as needed” to support the economy.

The survey said that banks loosened standards for loans to large and medium-sized firms, while loan standards to small business were little changed for the fourth consecutive survey.

“Banks are lending and that’s a good thing,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank AG in New York. “Banks have been easing standards for the past couple of years and that’s continuing but now you’re seeing demand picking up too and more loans are getting made.”

More Competition

Banks that eased standards on business loans “continued to cite more aggressive competition from other banks and nonbank lenders as a reason. Only about one-fourth of the banks that had eased lending policies had done so because of a more favorable or less uncertain economic outlook.”

Demand increased for commercial real estate loans according to a “relatively large” number of survey respondents. Standards for such loans were more likely to be eased than tightened, banks said.

The survey of loan officers at 64 domestic banks and 23 U.S. branches and agencies of foreign banks was conducted from July 3 to July 17, the Fed said. The report doesn’t identify respondents.

Consumer lending standards for car financing and credit card loans eased, while standards for other consumer borrowing were about unchanged, according to the Fed. Banks “reported stronger demand for auto loans,” and an increase in demand for credit card loans, according to the survey.

Mortgage Demand

A “relatively large” number of loan officers reported stronger demand for prime mortgages during the survey period, while lending standards for those home loans were little changed, the Fed said. Standards “tightened somewhat for nontraditional mortgages,” according to the survey.

Increasing credit, along with the rebounds in housing and autos, may provide “some underlying support” for economic growth, according to Michael Strauss, who helps manage $26 billion as chief economist and chief investment strategist at Commonfund in Wilton, Connecticut.

“It may hint that two highly interest-rate-sensitive sectors, autos and homebuilding, are going to get economic support,” Strauss said before the report. “It means there’s going to be GDP growth coming from those sectors.”

The Standard & Poor’s 500 Financials Index (S5FINL), which tracks the performance of 81 companies, has risen 15 percent this year, compared with an 11 percent increase in the broader S&P 500 Index. The S&P 500 rose 0.6 percent today to 1,398.62 at 2:20 p.m. in New York, heading toward the highest close in three months.

U.S. Bancorp

U.S. Bancorp (USB:US) posted its 11th straight year-over-year increase in quarterly profit as revenue rose and the amount set aside for bad loans declined, the Minneapolis-based bank reported last month. Revenue climbed 8.1 percent to $5.07 billion from a year earlier.

Chief Executive Officer Richard Davis, 54, has credited his strategy of running a “boring” bank that takes deposits and makes loans while avoiding volatile businesses such as investment banking.

Commercial and industrial loans at U.S. commercial banks remained at a three-year high of $1.45 trillion for a second week as of July 25, according to Fed data. The gauge of lending has increased for the past eight quarters, the longest streak of gains since the last recession ended in June 2009.

The residential real estate market is strengthening as record-low mortgage rates lure buyers. Housing starts rose 6.9 percent in June to a 760,000 annual pace, the fastest rate in almost four years, the Commerce Department reported July 18. Home prices adjusted for seasonal variations rose 0.9 percent in May from a month earlier, the biggest one-month gain since July 2009, according to the S&P/Case-Shiller index of values in 20 U.S. cities.

To contact the reporters on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net; Jeff Kearns in Washington at jkearns3@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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